Covered Calls

Resources

Getting Started

Daily Newsletter, Sunday, 04/06/2003

HAVING TROUBLE PRINTING?

The Option Investor Newsletter Sunday 04-06-2003
Copyright 2003, All rights reserved. 1 of 5
Redistribution in any form strictly prohibited.
Entire newsletter best viewed in COURIER 10 font for alignment
In Section One:
Wrap: Stable and Bullish
Futures Market: Silly Putty
Index Trader Wrap: Another week, another turn
Editor’s Plays: Avoid Software
Market Sentiment: Holding Pattern
Ask the Analyst: Breaking a losing streak
Coming Events: Earnings, Splits, Economic Events
Updated on the site tonight:
Swing Trade Game Plan: You're Getting Sleepy... Very Sleepy
Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP (view in courier font for table alignment)
******************************************************************
WE 4-04 WE 3-28 WE 3-21 WE 3-14
DOW 8277.15 +131.38 8145.77 -375.85 8521.62 +661.91 +119.68
Nasdaq 1383.51 + 13.99 1369.52 - 51.65 1421.17 + 80.84 + 35.04
S&P-100 446.69 + 8.75 437.94 - 18.43 456.37 + 32.30 + 3.95
S&P-500 878.85 + 15.37 863.48 - 32.41 895.89 + 62.62 + 4.38
W5000 8319.97 +134.60 8185.39 -277.93 8463.32 +566.83 + 39.17
RUT 373.28 + 4.58 368.70 - 7.53 376.23 + 21.84 + .21
TRAN 2188.67 + 25.47 2163.20 -100.29 2263.49 +236.40 - 15.39
VIX 32.80 + 0.62 32.18 - 1.44 33.62 - 2.71 + 0.68
VXN 42.85 - 0.24 43.09 - 2.69 45.78 - 0.02 - 0.59
TRIN 1.00 1.43 0.59 1.11
Put/Call 0.76 1.31 0.63 0.70
******************************************************************
Stable and Bullish
by Jim Brown
Despite really bad economic news, dozens of tech warnings, more
threats of unconventional attacks by Iraq and a couple of Saddam
videos showing him to be alive and touring bomb damage in Baghdad
the markets held their ground and the Dow closed positive. A
pretty bullish performance in my opinion.
Dow Chart - Daily
Dow Chart - 60 min
Nasdaq Chart - Daily
Nasdaq Chart - 60 min
The two major events for Friday were the Nonfarm Payrolls and
the capture of the Baghdad airport. The combination of the good
news and bad news combined to produce a stalemate in the markets.
The Jobs Report showed a loss of -108,000 jobs for March and a
downward revision for February to -357,000. While the number of
jobs lost was four times the consensus estimate of -25,000 it
was still under the whisper number of -250,000. That made the
bad news less bad than expected even with the additional -49,000
job revision for February. The -463,000 jobs lost in the last
two months is one of the biggest losses in any two month period
since 1982. Every time this has happened the Fed cut rates in
response.
This jobs number was not a real surprise since we have had
seven straight weeks of Jobless Claims over 400K. Another
factor confusing the report was the additional call up of
60,000 reservists. If those were employed in the workforce
then hiring replacements would have increased the jobs number.
Since not all reservists were replaced we cannot derive a one
to one ratio but there was a positive impact by this process.
Since these jobs are temporary jobs until the reserves return
it is only a temporary bump. There have been 210,000 reserves
called up though mid-March. If 150,000 were replaced on a
temporary basis then the jobs numbers would have been 150,000
lower over the last two months without the war.
Another anomaly in the report was the drop of -34,000 local
government employees. This was generally in public school
staff. Analysts think this is a symptom of the state budget
problems and the attempt to lower overhead. These workers
will not be hired back for some time as it is not a demand
problem as in business. State and local governments will
have to wait until additional funds in the form of taxes
become available. Until companies experience higher demand,
create more products, make a profit and then pay taxes the
positions will remain unfilled. Companies are not expected
to add employees until the second wave of demand appears.
They will want to make sure the demand is stable before
incurring additional employee expenses. The jobless rate is
expected to decline until mid-2004 and the unemployment rate
to rise to 6.2% by year end.
The other market mover Friday was the capture of the Baghdad
airport. This caused a significant spike in futures overnight
and kept a bid under the market all day. The impression that
the war could be over in days is making long term buyers bullish.
This is remarkable stability in the face of other war news on
Friday. There were numerous reports of chemical/biological
weapons or traces of them being found in several locations
in Iraq. More Iraqi soldiers were found near Baghdad with gas
masks and the Iraqi Minister vowed to attack the coalition
with unconventional weapons as early as Friday night. His
claims were later qualified to not mean chemical weapons but
suicide bombers and other means. The biggest jolt to the
market was two videos of Saddam, which most analysts quickly
agreed were recent and proof that he was alive and well.
The SARS epidemic continued to gain speed with the W.H.O.
adding Singapore, Taiwan and Vietnam to it list of places
to avoid. This follows the Hong Kong warning earlier in
the week. Flights out of these areas are packed and travelers
are heavily screened for any illness. President Bush signed
an executive order allowing quarantine of infected persons.
Cancellation of business and recreational travel to the
affected areas as well as business closures and fear of
crowds has already cost a full point of GDP to the Hong
Kong economy. Asia was not financially well when it started
and as long as the disease keeps spreading their economy
will only get worse. The US depends on Asia for not only
manufacturing of everything from clothes to computers but
as consumers of our goods as well.
Despite all the external influences the market held up
remarkably well. This was even more remarkable in the face
of the flood of earnings warnings for the week. There were
15 earnings warnings in the software sector alone. SEBL
followed PSFT and others in the confessional after the close
and echoed the comments from all who went before. They all
said large orders had been postponed with many customers
canceling them entirely. The software sector is becoming
the leading indicator for the tech sector for this cycle
and the weakness is expected to be repeated in chips and
computers over the coming weeks. All companies complained
that uncertainty about the war and the post war conditions
was weighing on the economy. There is a key phrase there.
The key phrase is "post war" conditions. There are starting
to be concerns that the post war conditions may actually be
worse than the pre war conditions. There have been several
comments in the last couple days that companies have actually
been reluctant to layoff employees despite shrinking earnings
because of the expected post war pop. Everyone has been
talking about the post war pop for so long that it has taken
on a life of its own. Many are now beginning to question what
will cause a post war pop. It is becoming clear that if the
actual pop is the expectation bubble bursting and nothing
else then conditions could go from bad to worse very quickly.
The current economic conditions and the frequent White House
visits by Alan Greenspan over the last couple weeks would
point to some kind of effort underway or to be announced to
increase the Fed's market stimulus. This is likely to be
in addition to a rate cut. There is a 69% chance of a 25
point cut by the May-6th FOMC meeting. After the very
negative Jobs Report there is a small chance of an
intermeeting rate cut on Monday. Some feel that if the Fed
does decide to cut they could take an aggressive stance and
skip to a 50 point cut instead. Most analysts do not feel this
is a likely possibility. A more likely path would be a drastic
boost in money supply to the point where excess liquidity
would eventually float the economy. Thus the multiple visits
to see the President over the last couple weeks to discuss
strategy. The potential for escalating Fed action has not
been lost on the markets and that is another reason for the
underlying bid.
Despite the underlying bid on Friday the markets will have
an entirely new set of problems next week. According to the
government the most dangerous phase of the war is still
ahead. The lightning strike from the border to Baghdad was
accomplished by running past all the major towns and leaving
Iraqi soldiers intact in those towns. The intention was to
allow following troops to break off and undertake the very
slow and dangerous process of clearing the towns. Basra is a
prime example. It has been surrounded by 35,000 coalition
troops for two weeks and we still do not control it. We are
not going to control Baghdad anytime soon. There are multiple
divisions racing to catch up with the advance party to
reinforce them and their 4x5 mile outpost at the airport.
Iraq is also pulling in all forces including 8,000
10-15 year old kids called the Saddam Cubs to fight the
coalition. The positive war results held the market up on
Friday just like the prior Friday. Without any new success
over the weekend we could see a repeat of the last two
Mondays.
The beginning of the week will be devoid of any material
economic reports. Wholesale Inventories on Tuesday is the
only significant report in the first three days. Thursday we
will get Jobless Claims and Import/Export Prices and Friday
the PPI, Retail Sales and Michigan Sentiment. It is not a
particularly exciting economic week. Earnings will begin to
pick up speed with Thursday being the first high volume day.
Despite the potential for negative surprises it is fairly
obvious that investors have already discounted the event.
They are ignoring economics and fundamentals for the pre
war quarter as past history. Need proof? The Nasdaq only
lost -13 points on Friday after 15 software warnings, five
chip sector warnings and multiple warnings and downgrades
in the biotech sector. In normal times we would be down
triple digits on the Nasdaq for the week. Couple that with
the ISM and Jobs data and it would have been a massive
drop. All the indexes finished up for the week instead.
The Dow closed just under 8300 and up +131 points for the
week. We had a perfect retracement of the March rally of 50%.
With the rebound on Wednesday we have now retraced 61% of the
drop. In English that means the pressure is on the bulls to
hold the ground captured on Wednesday. The Dow needs to break
and hold 8330 to keep the rally alive. The Nasdaq is under
a little more pressure due to the warnings mentioned above.
It tested 1400 again on Friday and fell back to initial
support at 1380. The next support levels would be 1365 and
1340. The Nasdaq needs to break 1400 again to attract needed
volume to maintain the rally. The markets are completely
news driven at this point and trying to attach too much
importance to economics is a waste of time. We are on auto
pilot waiting for the war to end. The only pattern that may
be tradable is the Monday drop. The last two Mondays posted
triple digit drops when there was no weekend surrender.
Nobody knows if that scenario will continue but the only
guarantee is that war news will continue to be the only
motive force.
Enter Very Passively, Exit Very Aggressively!
Jim Brown
**************
FUTURES MARKET
**************
Silly Putty
By Vlada Raicevic
Daily Settlement Numbers 4:15pm ET
> DOW
Last: 8277.15
Net: +36.77
High: 8305.86
Low: 8215.10
> YM 03M
Last: 8256
Net: +58
High: 8300
Low: 8191
> S&P 500
Last: 878.85
Net: +2.40
High: 882.73
Low: 874.23
> ES 03M
Last: 878.50
Net: +5.25
High: 884.25
Low: 870.75
> Nas 100
Last: 1050.71
Net: -13.35
High: 1067.51
Low: 1044.37
> NQ 03M
Last: 1050
Net: -17
High: 1078
Low: 1046.50
DAILY PIVOTS
> YM 03M
R2: 8360
R1: 8310
Pivot: 8251
S1: 8201
S2: 8142
> ES 03M
R2: 891
R1: 885
Pivot: 878
S1: 872
S2: 864
> NQ 03M
R2: 1088
R1: 1066
Pivot: 1056
S1: 1034
S2: 1025
For today, I was just tempted to use the same futures wrap I wrote
for yesterday. It would be nearly impossible to have a choppier,
go nowhere, do nothing kind of day. Maybe it just seems that way,
or after three days of watching this kind of market, I'm just numb,
and the glazed eyes are having trouble seeing reality instead of
what actually happened. Speaking of reality, where exactly is it?
While bad news continues to come endlessly, like waves crashing on
the beach, the market has its beach towel out, colorful umbrella
open, and is sipping a cool drink, not paying attention to
anything, taking little naps, and waiting for all the good news
that is assuredly coming when we are victorious in war.
Today we opened with a gap up after the unemployment numbers were
less horrible than expected. War news yet again caused futures to
dance the merry jig overnight, and with the unemployment numbers
refusing to throw a wrench into the bullish machine gears, there
was expectation that the market would open and run. However, after
the gap up we sold off to fill the gap, and then spent the rest of
the day bouncing sideways like a lead marble. The bounces got
smaller and smaller but never broke below the magic 873 area except
for one brief poke to 872.75. No breakdown, no breakup, nothing
but a barren wasteland of indecision.
I would like nothing better than to say something concrete, to make
a statement that would illuminate what happened this week, but
alas, there is no hope of that. The market stubbornly refuses to
care about economics, and like a kid with his face pressed against
the candy store window, no amount of arm-tugging is going to peel
him away. It is obvious that the market considers the war as a
candy store, staring at all the goodies inside, and just waiting
for the door of victory to open, and knowing that once inside, all
will be well.
Looking at the ES Daily chart, you can see that we reversed
yesterday's modest red candle, but indicators are mostly flat.
Macd has not crossed up, but is still above the centerline and
trendline, fast stochastic is still pointing up and slow stochastic
has stopped its descent. RSI has flattened but is still in bullish
territory, and ADX shows selling is nonexistent while buying drops
off. The chart is bullish leaning, but without momentum or for
that matter, without direction.
ES Daily Chart:
The ES 270 minute chart is nearly identical to the daily, but with
indicators being a little more clear. The only difference here is
that the fast stochastic is rolling over, and slow stochastic has
actually turned up and is crossing the centerline, a bullish event,
but showing that while trend may have turned slightly positive over
the last 20 days, the near term is looking a little shaky. All
other indicators are flat.
ES 270 Minute Chart:
ES weekly chart shows the downtrend line still holding, with lower
lows than last week and higher highs than the week before. We have
closed above the 50% level again from the move off the lows on
3/14. Macd is still crossed up and pointing up, fast stochastic is
still moving up and is not converging indicating no imminent
rollover. RSI is still below the trendline and the centerline, and
has gone completely flat, as has CCI. MOVO is coiling inside a
triangle but is below the trendline and centerline. It looks like
even the weekly chart is at an impasse, with half the indicators
either showing some mild bullishness, mixed with mostly neutral
readings in others. In order to get this chart bullish, we will
need to close next week above the downtrend line.
ES Weekly Chart:
After a couple of strong days, the NQs under performed the ES and
YM, closing in the red and putting pressure on several indicators,
with RSI, ADX and CCI all starting to roll over. CCI is still
below its moving average, but RSI is above the centerline and
uptrend line and so is still bullish leaning. Fast stochastic
looks like it was unaffected by today's selling and is still
pointing up, and Macd did not get the bullish crossover but is
still above the centerline and trendline. This chart is on the
cusp of giving some sell signals, but it would be easy to save this
from the sell signal by additional positive days. It is not yet
terminal. However, if sell signals were to generated it would be
quite bearish since what we have is a bull run, pullback, and then
a second run which stopped well off the high. Selling off here
would not be good as those that bought the dip would be quick to
get out in the face of a potential failure to confirm the first run
up. ADX is also getting close to crossing back to bearish, with
both selling increasing and buying decreasing, unlike the ES chart
where the buying is decreasing, but sellers have gone into hiding.
NQ Daily Chart:
NQ 270 minute chart shows how the NQs are close to getting that
sell signal. The recent gap up on 4/2 gapped above the red
downtrend line and the pink uptrend line, and closing above it
meant that they were both now support. Today, price gapped down
below the pink line, and failed to fill the gap, creating a bearish
Island Reversal. Note that a Bullish Island reversal was created
in on that 4/2 gap up. Price is now between the two islands, and,
if you are confused, so am I. Indicators are not looking good,
with Macd ready to break down and slow stochastic already rolled
over, which, with slow stochastic already below the centerline, is
not a good sign.
NQ 270 Minute Chart:
There was not much damage done to the NQ weekly chart, and it still
is more bullish than the ES or YM. Macd is flat but above the
centerline, slow stochastic is as perfectly neutral as can be, flat
and right on the centerline, but fast stochastic is about to cross
over to the downside, an indication perhaps, of things to come.
Both RSI and CCI have strong hooks downward but are still in bull
territory holding above their uptrend lines. With both daily and
weekly charts on the verge of giving sell signals, it is important
that NQ hold the recent gains or a trend change will occur.
NQ Weekly Chart:
Reading the NQ chart has been much easier than the ES or YM, since
the NQs have actually had much more volatility the past two weeks.
ES is just absolutely frustrating, since most of its gains have
been through a monster gap up, it has just churned sideways,
unwilling to sell off, and unable to push above resistance. For
traders there is absolutely nothing more frustrating than a flat
market, and for those trading the ES, this is all they have gotten.
In fact, the usually benign night session has had most of the
volatility, and hence, most of the fun for traders. The day
sessions have been just gaps and sideways churn. Here is hoping,
yet again, that the next week will give us some better trading,
rather than gap and nap.
********************
INDEX TRADER SUMMARY
********************
Another week, another turn
By Leigh Stevens
lstevens@OptionInvestor.com
The market rebounded on forward movement by our troops to the
outskirts of Baghdad by week's end. Saddam airport is now
Baghdad International at the wish of the almost-in-charge U.S.
Administration. The fear in the prior week was that the troops
were bogged down. However, the market is hesitating again as the
toughest fight for control of a big urban area is still ahead.
Wish I had a quarter for every talking head that said Mogadishu
and "Black Hawk down" in the same breath, but urban warfare is a
tough nut. Still, another week, another story. It doesn't pay to
get to "micro" (as in embedded) in a big-picture conflict.
THE BOTTOM LINE –
Once again the S&P is stalled at its 200-day moving average and
its tough to move the chains across that benchmark. The
institutional set has got to have confidence to bid stocks
through this area, at 885 in SPX currently and 8382 in the Dow.
Technically, the recent pattern could be a small bull flag or
just congestion - no prediction on which direction on the next
move. I lean to a view for sideways to lower this week based on
the faltering Nasdaq, which has been leading the rally. And,
because the military advance may slow as the Iraqi's dig in and
this will dampen bullish hopes for a while.
FRIDAY'S TRADING ACTIVITY –
The indices ended mixed at week's end as traders and investors
watched news from Iraq and squared up positions ahead of the
weekend. The S&P 500 (SPX) was up 2.4 points to 878.8, the Dow by
37 points to 8277 on light volume - NYSE had 1.23 billion shares
change hands versus an average of late of 1.4 billion. The
Nasdaq Composite (COMPX) fell 13 points to 1383 as PeopleSoft
warned on its software earnings.
Videos of Saddam Hussein making references to events occurred a
few days after the first night attack provided some convincing
evidence that he was alive and well enough to get around. Maybe
he's had too many crispy cream donuts or the Iraqi equivalent,
but he was not on his deathbed. An alive and kicking Saddam may
account for the stiffer than expected resistance at various times
and dampens the hope for a shorter conflict. Every week that
goes by with this thing dragging on is another week that the
economy can slow or where spending doesn't pick up.
Ample evidence of a lackluster and weak economy was provided by
the Labor Department as they reported that U.S. Payrolls dropped
by a larger than expected 108,000 in March. This followed a
decline of 357,000 in February. The unemployment rate did hold
steady at 5.8%, which seems to be an effect of the sizable number
of jobless who have stopped looking for work. I don't blame em! -
I would rather go fishing and wait a while for a more encouraging
jobs picture. Hey, its salmon season in California! And the East
and Midwest may see some spring any day now after the winter from
hell.
The job losses are exactly in the areas that you would expect -
the ones affected by the war or by the dip in consumer spending,
and things that are travel related: department stores,
restaurants and hotels - and the airlines, forgetaboutit! Well,
except for government handouts that is. The Airline Index (XAL)
rallied some 3% as Congress approved $3 billion in aid to the
industry. American (AMR) was a standout performer in the group,
as it rebounded some 9%.
The average work week was up slightly however. The economy is
not coming apart at the seams. Imagine what could happen if
there were relatively peaceful times for a year. We might all go
to Disneyworld this year - hopefully, not all at the same time
like they do in France. Oh, those French, they're so much
trouble!
Oil prices backed off some, dropping a bit further under $30 a
barrel, to $28.40. Gold was steady at $324. Gold's pattern
looks like a further fall is ahead however, which is mildly
bullish (or, at least not bearish) for stocks.
The Dow would have been up substantially more, but Altria (MO)
dropped nearly 5% after the Illinois Senate rejected a proposal
that would have put a cap on the size of an appeals bond facing
its Philip Morris US group. The court has ordered a $12 billion
dollar bond. The one industry that I have greater nightmares
about working for than the big airlines is big tobacco - or
little tobacco for that matter.
I mentioned PeopleSoft (PSFT) raining on the Nasdaq parade - the
stock fell 9% after the big software maker and tech darling cut
its earnings and revenue estimates. The company noted lackluster
business spending, the weak economy and the war in Iraq as all
combining to hurt its business. Other tech stocks suffered in
the wake of it - Texas Instruments (TXN) was off nearly 5%,
Computer Associates (CA) down 5% and Intel (INTC), which shaved
3% off its Thursday close.
And, last but not least - according to a report I saw on
CBS/Marketwatch, who I also write for from time to time, my old
Wall Street firm, Merrill Lynch, along with Credit Suisse First
Boston, could be accused of fraud when regulators take the wraps
off the final details of a $1.5 billion (yes, billion with a "b")
settlement to change forever the way research is done on the
Street of Dreams. However, this is not likely to have an impact
on any civil litigation. And, we all know "they" are (or WERE) a
bunch of crooks anyway. Well, maybe a TAD bit greedy at least!
OTHER MARKETS -
Bonds fell slightly on profit taking it seemed given the strength
of prior days and the dollar was up against the euro. The euro
changed hands at 1.0713 at week's end. I think they ought to
just peg it equal to a dollar. Then we can go to our coalition
of the willing (they cheer us on but don't send troops) partner
Spain and know what's what dinner at 10 euros is costing in good
oh yankee dollars. I'm making a trip there this month - I'll send
back a report!
GOLD is at a crucial juncture and this market is important in
terms of a sort of reverse indicator for equities. If gold
looked like it was going to keep going up, look for stocks to
retreat. Both the weekly charts of the Philly Gold & Silver
stock index (XAU) and the nearby futures contract have retreated
to important technical supports. They may hold these areas and
rebound some, but gold futures look bearish in that the
continuous contract has broken its 40-week (equivalent to the
200-day) moving average and both have downward momentum as seen
by using the MACD Indicator on the XAU -
MY INDEX OUTLOOKS –
Well, first something a bit different than usual - a couple of
important S&P bellwether stocks are acting like they could go
higher. A bellwether stock is one that tends to lead the market
or at least should be performing "in line" with the index of
which its part. GE and IBM have charts that are worth looking in
this context -
GE - A decisive upside penetration of the prior high in the $28
area will bode well for the S&P index as does the fact that,
unlike SPX or OEX, GE is trading above its 200-day moving
average. Of course, it is an institutional darling -
nevertheless GE appears to be under steady accumulation and this
bodes well for the market. Bullish technicals include the solid
double bottom low and the steadily rising OBV (On Balance Volume)
line that is what indicates the ongoing accumulation or buying of
the stock.
IBM is the other stock that is worth noting here as a harbinger
for the market. Its pattern is also bullish. The fact that the
company's earnings are now broadly based in computer services
suggests that there may be some recovery going on in business
spending.
Back to some of the shorter-term outlooks that is our bread in
butter in trading the indices.
S&P 500 Index (SPX) – Daily & Hourly charts:
If GE is an indication, the breakout will be the upside, above
resistance implied by the 200-day moving average but we have to
wait to see if it does it. If there is a decisive upside
penetration of 880, then the measuring implication of the bull
flag pattern suggests a next move to around 910 - a move through
900 would likely induce short-covering type buying in the key S&P
stocks. 930 is major resistance.
Key near support is at 860 in SPX, then at 845. SPX must hold
above 860 to keep a bullish chart pattern intact.
The 10-day Arms Index (TRIN) is showing substantial selling over
this timeframe - enough so to be mildly bullish as a contrary
indicator. A high level of TRIN indicates a high level of selling
of course and a high level of buying is seen in a low reading.
Unlike our other indicators and as suggested by the green
(downward pointing) arrows on the TRIN chart (left above), the
upper line could be thought of as suggesting an "oversold"
market.
On the bearish side of things technically, is the downward
momentum suggested by the hourly and daily stochastic indicators.
Its not usually the case to that there is a sustained rally
without the oscillators reaching more oversold, or at least
neutral/midrange, readings. However, if the battlefront news is
perceived as good - i.e., short-war scenario - then this trumps
all other considerations.
S&P 100 Index (OEX) – Daily & Hourly charts:
450 is the key near resistance, then 457. An hourly close over
457 is bullish, but better would be confirmation by a daily close
above this level.
430 is key near support. OEX could drop back to this area and
still maintain a bullish chart - but not so a break of 428,
especially on a closing basis.
Nasdaq Composite Index (COMPX) – Daily & Hourly:
The pattern where an index or a stock "gaps" lower, then "gaps"
higher such that there is a bar or a few bars in an isolated
position (either on the downside or upside) is called an "island"
formation. In this case it looks like a possible island bottom
in the Composite. This pattern is not very common in equities,
more so in commodities, but it does happen so I take note of it.
It comes about due to a volatile situation in the markets, which
is certainly true here.
The most bullish outlook would come from an ability for COMPX to
hold at and above 1366, the top end of the 1356-1366 gap. Support
should also be found at the low end of this gap, at 1356. A
bullish outlook exists if the COMP doesn't pierce 1356, although
1340 is important also as the 200-day moving average level and
the more or less top end of the prior trading range.
Key overhead resistance in the Composite is 1420. So far the
overall chart pattern remains consistent with a bear market
trend, as there is this pattern of lower rally highs. This
pattern needs to be broken with a higher high to suggest that the
intermediate trend might be turning around.
QQQ charts - Daily & Hourly:
The Q's have a similar pattern to the Composite, being part of
the same group of stocks of course. The difference is that the
Nasdaq 100 shows more of this triangle shape on the daily chart
that suggests a symmetrical triangle - which, in turn, indicates
that buying and selling are pretty much in balance.
However, the potential exists for buying or selling to overwhelm
the other. There is a tendency for a good-sized move when there
is a decisive penetration of the descending line or, conversely,
a break of the rising up trendline. Stay tuned!
Key near-resistance looks to be 27-27.4 in the Q's. Support is
indicated in the 24.6 - 25.3 price zone. I anticipate some
follow through in the direction of a breakout through either of
these areas.
I continue to want to keep my trading commitments light given the
unknowns ahead. No doubt I've said before that I would rather
trade off from other factors than the fog of war. The "normal"
fog of the market is enough for me!
My Trader's Corner article last week went into how the technical
Patterns-Indicators-Sentiment of the week before were helpful or
predictive in judging the potential and price points for the
rally that developed this past week found at -
http://www.OptionInvestor.com/traderscorner/tc_040303_2.asp
------------------------------------------------------------
WINNER of Forbes Best of the Web Award
optionsXpress voted Favorite Options Site by Forbes
Easy screens for spreads, collars, or covered calls
Free streaming quotes
Real-time option chains, charts + calculators
Go to http://www.optionsxpress.com/marketing.asp?source=oetics21
Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------
**************
Editor's Plays
**************
Avoid Software
That would appear to be the message today. PSFT and SEBL
joined a long list of software companies that have warned
for this quarter.
The main reason appears to be "push outs" where customers
delay large orders to future quarters. There are also
many outright cancellations due to a weakening business
environment. The bigger the price of the software package
the more susceptible they are to push outs or cancels.
My pick for the week is ORCL. This is a very big ticket
software company that makes a living selling licenses to
large companies with thousands of employees. In past
downturns ORCL has experienced significant problems
as customers delayed their orders. The PSFT and SEBL
warnings last week paint a very bleak picture for ORCL.
The software warnings knocked about -50 cents off ORCL
on Friday but I think that is just the start of the trend.
ORCL is a late reporter and just announced earnings on
March 18th. They warned for the current quarter and said
they were seeing a "precipitous" fall off in new business.
They estimated a 6% drop in new business for the current
quarter.
With the Wednesday rally this week ORCL spiked to within
20 cents of the price before they warned. Are all sins
forgiven? I doubt it. What we saw was some serious short
covering in techs and there were a lot of shorts in ORCL.
I think we got a second chance to profit from the weakness
in the software sector for a cheap price. ORCL is a cheap
stock and options are almost free.
At $11.39 I am going to recommend the May $12.50 put for
$1.50 or for gamblers the May-$10.00 put for $.35 cents.
The $10 option is very high risk. The $12.50 option is already
$1.11 in the money for a premium cost of $.39 cents. That
means a drop of more than 39 cents guarantees you no loss
on the option. ORCL only has to move below $11 to profit
and that is only a 39 cent move. The recent lows have been
$10.61 and with all the other problems in the software
sector we will have lots of negative press.
We are not trying to hold this option until the Next ORCL
earnings in two months. We are only holding it until the
rest of the sector reports over the next four weeks. We
want the other earnings reports to do the dirty work for
us.
Stop loss $12.50 in case we get a post war bounce.
If you are afraid of the potential for a post war bounce
then buy the May-$12.50 call ORQ-EV for $.40 cents. This
gives you upside potential on an unexpected bounce and
downside potential if the play goes as planned. It will
raise your cost basis in the play.
********************************
Play updates:
I am only listing the current recommendations with a
link to the initial write up and unless the play changed
substantially.
QQQ Put - $26.08 3/30/03
We can't seem to get a break on the QQQ put play. The last
two time we tried it something happened to negate it at
Monday's open. The Nasdaq gap down and the $1.00 gap down
in the QQQ on Monday inflated options to excessive levels
and nobody should have entered this play. I am dropping
it again as not entered.
http://members.OptionInvestor.com/editorplays/edply_033003_1.asp
QLGC - Qlogic Put - $38.45
3/23/03 ($39.98 when recommended)
Qlogic sold off on the Nasdaq drop to $36.90 but rebounded
to close the week right back near where we started at $38.45.
The multiple warnings in the tech sector may have started to
weigh on the Nasdaq but with the April option we need to close
this play by next weekend if it is not going in our direction.
The APR-$37.50 put traded up to $2.05 this week from the
recommended price at $1.65.
http://members.OptionInvestor.com/editorplays/edply_032303_1.asp
CY - Cypress Semi Call - $7.70
3/2/03 ($6.41 when recommended)
CY cannot get a break. The stock soared to $8.30 on Wednesday
but a downgrade on price on Friday knocked it back to the
prior weeks range. It is still positive despite the problems
in the chip sector.
http://members.OptionInvestor.com/editorplays/edply_030203_1.asp
Microsoft Call - Feb-16th $25.09
(MSFT $24.15 when recommended)
http://members.OptionInvestor.com/editorplays/edply_021603_1.asp
EMC Call from Feb-2nd $7.75
($7.70 when recommended)
http://members.OptionInvestor.com/editorplays/edply_020203_1.asp
Powerball - From 12/29/02
It would have taken $1,255 to buy one contract of each on
January-2nd. Any bets on what this will be worth on 12/31/03
http://members.OptionInvestor.com/editorplays/edply_122902_1.asp
********************
Remember, these are high risk plays and should only be made
with risk capital.
Good Luck
Jim Brown
****************
MARKET SENTIMENT
****************
Holding Pattern
by Steven Price
As we headed into another weekend with pictures of war still
floating across the television screens, traders maintained a wait
and see posture, rather than taking a strong opinion on where we
are headed next week. We once again got some disappointing
economic data, but it was largely ignored as conflicting signals
from a number of sectors signaled only that there was plenty of
indecision.
This morning's jobs report showed a still weakening picture, with
the additional loss of 108,000 jobs in March. That was much worse
than expectations for a drop of 17,000 and combined with a
downward revision to February's numbers, amounts to a loss of
465,000 jobs in two months. The losses extended to both goods
and service producing sectors, mirroring ISM reports from earlier
in the week that showed contraction in those sectors. The
manufacturing sector has now shown 32 straight months of declines
for a loss of 2.2 million jobs.
The jobs data followed an evening of earnings warnings and few
upside surprises. Most of the warnings came from Nasdaq stocks
and the Nasdaq Composite reflected that sentiment by the end of
the day with a drop of 13.07 points. In early market action,
however, an overnight rally in the futures market led to a gap
open to the COMP's high of the day. It topped out once again at
1400 (high of 1400.97), a level that has provided closing
resistance since March 21. The sinking exponential 200-dma has
kept a lid on the last several rally attempts and appears to be
doing so again. The COMP now sits at 1383.51 and reflects a
failed rally on Thursday at the exact level of the 200-ema, which
sat at 1412.
Speaking of 200-dmas, the simple 200-dmas that are declining
across the broad market indices have also been setting a ceiling
on rally attempts the past few days. Those averages in the Dow
(8370), OEX (446.92), and SPX (884.84) have been tested closely
the past three days, bringing out the bears each time. Traders
looking for a level to judge the beginning of a new leg up can
keep an eye on those averages for evidence that the bulls have
finally overwhelmed the bears. Keep in mind that the 200-dmas
were broken on the massive rally Friday March 21, just before the
first weekend of the Iraq war. That now looks like a round of
massive short covering ahead of what appeared at the time to be a
possible quick end to the war. However, as we all know, those
easy victories of the first few days weren't a reliable indicator
of how long the operation would last and the 200-dma
breakthroughs on those expectations turned out to be unreliable
bullish indications. We could certainly see another spike that
acts in the same way, but if we continue to creep higher through
those barriers without an end to the war, the breakthroughs may
be more reliable this time around. By the end of the day, the
Dow, OEX and SPX finished slightly higher, while the Russell
(RUT) 2000 finished lower, along with the techs.
The Dow hovered on both sides of unchanged for most of the
session and oil dropped slightly. However, gold spent much of
the day higher, giving contrary signals for traders trying to
pick a direction from here. May Crude Oil Futures (CL03K)
bounced yet again from the 200-dma at $27.80 and traders looking
to go long for an "end of the war" rally should watch for a
breakdown of that 200-dma for confirmation.
Two videotapes of Saddam Hussein hit the airwaves today. One
that was purported to have been shot this morning shows Saddam
walking through the streets of Baghdad, greeting Iraqi citizens
and the other was an address in which he urged Iraqis to fight
and talked about a recent incident in which a U.S. helicopter
went down. The markets pulled back after the videos were
released, as it now appears Saddam is alive. While the tapes
have not been analyzed to determine whether they are recent or
whether they are even Saddam, the White House said it was
basically irrelevant at this time since the regime would be out
of power soon anyway.
The economic news suggests that a rally on a successful result in
Iraq may only last a short time. For the time being, companies
are blaming a lack of corporate spending and the weak economy on
the war. When the war ends, that excuse will no longer be
available. As the 32 straight months of manufacturing job losses
show, our problems began far before the Iraqi conflict. While we
may see businesses ramp up spending when the geo-political
situation clears up, we have yet to see signs of that actually
happening. On a technical basis, we are holding much of the
recent rally and the still rising bullish percents from the point
and figure charts indicate underlying technical strength and
another run higher. However, fundamental weakness should
eventually catch up and traders going with the flow and playing
the current uptrend may want to keep their stops tight enough to
capture gains if we get a "sell the news rally" at the conclusion
of war, rather than a continuation of the current trend. Even if
the trend does continue until those bullish percents reach higher
toward overbought at 70%, it appears that the economic data isn't
getting better and will eventually receive more attention when
the war ends.
****Readers will note that we have added the S&P E-mini data to
our COT report, per reader request. We would like to present the
most complete picture of overall positions as possible and feel
this will help paint that picture.
-----------------------------------------------------------------
Market Averages
DJIA ($INDU)
52-week High: 10673
52-week Low : 7197
Current : 8277
Moving Averages:
(Simple)
10-dma: 8194
50-dma: 7983
200-dma: 8370
S&P 500 ($SPX)
52-week High: 1176
52-week Low : 768
Current : 879
Moving Averages:
(Simple)
10-dma: 868
50-dma: 846
200-dma: 885
Nasdaq-100 ($NDX)
52-week High: 1573
52-week Low : 795
Current : 1051
Moving Averages:
(Simple)
10-dma: 1051
50-dma: 1009
200-dma: 990
-----------------------------------------------------------------
The Semiconductor Index (SOX): The earnings warning from STM
after the bell on Thursday took some shine off the sector and
helped send the SOX backward to a test of its sinking 200-dma at
308. The low on the day was 308.80. While the broader markets
mostly churned, the techs were the weakest link and the SOX
underperformed (-2.4%) the COMP (-0.93%) and NDX (-1.25%). STM
(-5%) also dragged down Intel (-3%) and the rest of the sector.
A warning from PeopleSoft(PSFT)this morning also took its toll on
the software sector, driving the GSO down 2.2%. We then got a
warning after the bell from SEBL, so software could be the next
bearish driving force in the techs.
52-week High: 393
52-week Low : 214
Current: 311
Moving Averages:
(Simple)
21-dma: 310
50-dma: 292
200-dma: 308
-----------------------------------------------------------------
The VIX bounced from the 30% level and even made an intraday run
back over previous support at 34%. That looked bearish at the
time, but by the end of the day, it once again found resistance
at that former support level. Until we break out of the current
consolidation, traders can expect to see the VIX trade in the
30-35% range. A move below 29% would look bullish in the short
-term for stocks, at least until the VIX reaches 26%. A move
back above 35% would indicate a possible pullback until the VIX
retests 40%.
CBOE Market Volatility Index (VIX) = 32.80 +0.46
Nasdaq-100 Volatility Index (VXN) = 42.85 +0.76
-----------------------------------------------------------------
Put/Call Ratio Call Volume Put Volume
Total 0.76 502,106 380,095
Equity Only 0.71 381,671 270,139
OEX 0.83 19,897 16,515
QQQ 1.02 53,371 54,443
-----------------------------------------------------------------
Bullish Percent Data
Current Change Status
NYSE 42.0 + 0 Bull Correction
NASDAQ-100 53.0 + 0 Bull Alert
Dow Indust. 40.0 + 0 Bull Alert
S&P 500 45.0 + 0 Bull Confirmed
S&P 100 44.0 + 0 Bear Alert
Bullish percent measures the number of stocks in an index
currently trading on a buy signal on their point and figure
chart. Readings above 70 are considered overbought, and readings
below 30 are considered oversold.
Bull Confirmed - Aggressively long
Bull Alert - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert - Take defensive action if long
Bear Confirmed - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend
-----------------------------------------------------------------
5-Day Arms Index 1.23
10-Day Arms Index 1.60
21-Day Arms Index 1.41
55-Day Arms Index 1.40
Extreme readings above 1.5 are bullish, and readings below .85
are bearish. These signals don't occur often and tend be early,
but when they do, they can signal significant market turning
points.
-----------------------------------------------------------------
Market Internals
Advancers Decliners
NYSE 1557 1254
NASDAQ 1366 1654
New Highs New Lows
NYSE 78 35
NASDAQ 108 37
Volume (in millions)
NYSE 1,463
NASDAQ 1,340
-----------------------------------------------------------------
Commitments Of Traders Report: 04/01/02
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange and Chicago Board of Trade. COT data
can be found at www.cftc.gov.
Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs tend
to be wrong.
S&P 500
Commercials stayed long for second most bullish reading of the
year, just one period after shifting from net short to net long.
Small traders reduced their overall net long position by
increasing their shorts.
Commercials Long Short Net % Of OI
03/11/03 440,688 485,938 (45,250) (4.9%)
03/18/03 483,224 490,582 ( 7,358) (0.1%)
03/25/03 424,781 415,258 9,523 1.1%
04/01/03 417,637 409,332 8,305 1.0%
Most bearish reading of the year: (111,956) - 3/6/02
Most bullish reading of the year: 9,523 - 3/25/03
Small Traders Long Short Net % of OI
03/11/03 169,450 102,631 66,819 24.6%
03/18/03 184,907 153,400 31,507 9.3%
03/25/03 143,402 123,178 20,224 7.6%
04/01/03 143,580 126,594 16,986 6.3%
Most bearish reading of the year: 20,224 - 3/25/03
Most bullish reading of the year: 114,510 - 3/26/02
E-MINI S&P 500 *NEW SECTION DUE TO READER REQUESTS*
This is our first report of this data. Commercials currently
maintain a net short position, while small traders are net long.
Commercials Long Short Net % Of OI
04/01/03 98,460 321,335 (222,875) (53.1%)
Most bearish reading of the year: (222,875) - 04/01/03
Most bullish reading of the year: (222,875) - 04/01/03
Small Traders Long Short Net % of OI
04/01/03 2,296 1,146 1,150 33.4%
Most bearish reading of the year: 1,150 - 04/01/03
Most bullish reading of the year: 1,150 - 04/01/03
NASDAQ-100
Commercials reduced long positions by just under 10%, while small
traders left long positions nearly unchanged, but reduced shorts
by about a third.
Commercials Long Short Net % of OI
03/11/03 43,641 56,020 (12,379) (12.4%)
03/18/03 58,877 64,302 ( 5,425) ( 4.4%)
03/25/03 44,403 36,436 7,967 9.9%
04/01/03 40,493 36,893 3,600 4.7%
Most bearish reading of the year: (15,521) - 3/13/02
Most bullish reading of the year: 9,068 - 06/11/02
Small Traders Long Short Net % of OI
03/11/03 27,196 9,674 17,522 47.5%
03/18/03 37,097 26,951 10,146 15.8%
03/25/03 10,313 20,080 ( 9,767) (32.1%)
04/01/03 9,771 13,306 ( 3,535) (15.3%)
Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year: 19,088 - 01/21/02
DOW JONES INDUSTRIAL
Commercials increased short positions slightly, while leaving the
long side alone. Small traders left both sides of the equation
unchanged.
Commercials Long Short Net % of OI
03/11/03 21,726 14,370 7,356 20.4%
03/18/03 26,880 18,853 8,027 17.6%
03/25/03 19,752 10,212 9,540 31.8%
04/01/03 19,068 12,672 6,396 20.2%
Most bearish reading of the year: (8,322) - 1/16/01
Most bullish reading of the year: 15,135 - 10/16/01
Small Traders Long Short Net % of OI
03/11/03 5,549 7,727 (2,178) (16.4%)
03/18/03 6,589 8,343 (1,754) (11.7%)
03/25/03 5,076 7,721 (2,645) (20.7%)
04/03/01 5,142 7,459 (2,317) (18.4%)
Most bearish reading of the year: (8,777) - 10/12/01
Most bullish reading of the year: 1,909 - 1/16/01
-----------------------------------------------------------------
------------------------------------------------------------
VOTED one of "Best Online Brokers" (4 stars)--Barron's
optionsXpress's "order-entry screens...go far beyond...
other online broker sites"--Barron's
8 different online tools for options pricing, strategy, and charting
Access to options specialists via email, phone or live chat online
Real-Time Buying Power, Account Balances or Cancels
Go to http://www.optionsxpress.com/marketing.asp?source=oetics22
Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------
***************
ASK THE ANALYST
***************
Breaking a losing streak
I have been extremely unlucky in the market lately ( if there is
such thing as luck ). I've always used mental stops but I'm
totally uncomfortable with them right now.........
..I was in the hospital for a couple of weeks and unable to
access my account and of course the market rallied (I was short a
whole bunch of puts at the time) and all of my positions expired
worthless at a great loss. I have made 8 straight losing trades
since then and my account has shrunk to about 1/5th of what it
used to be. Any suggestions on what I should trade? I know it
is a tough question but all the profits that I've made over the
last couple of years are gone ( and then some ) and it seems that
no matter what I do I always get stopped out on any trade. I used
to trade options on stocks and the OEX. I can deal with a lot of
risk and pain but it's getting ridiculous lately.
I believe there is such a thing called "luck," but don't count on
"good luck" when it comes to trading stocks or options and I
always try and plan on/for "bad luck," when investing/trading my
hard-earned money. The "luck" this trader has experienced so far
has bee the bad kind as he or she was involved in a car accident,
wound up in the hospital, and couldn't manage their account.
I had responded back to this subscriber and tried to get some
more information to have this column give us some detail where I
could perhaps try and go back and REVEIW the trades and try to
figure out just what "might be wrong."
If you trade long enough, EVERY trader is going to go through a
"losing streak." You will! Believe me. I go through at least 1
losing streak during a bear market decline, and I go through
another losing streak during a bull market advance.
The key for any trader is to have the losing streaks be short
lived on not overly damaging to the account.
Now you may not think that a good trader should go through a
losing streak. Wrong!
Think about a baseball pitcher. One year he mows down batters in
New York, signs a big free agent contract with the Colorado
Rockies, and the following year can't get the ball over the
plate. Somewhere in between, something went wrong and it is most
likely with the mechanics.
So what happens? The pitching coach comes to the rescue. Pulls
out the video camera and has the pitcher start throwing balls to
the catcher. The tapes are REVIEWED and analyzed. Sometimes a
fix is found as it is determined the pitcher is dropping his
right shoulder and that's throwing his entire delivery off.
While trading stocks and options isn't as correlative to throwing
strikes and mowing down the opposition's batters, there are some
comparisons in how a trader needs to do some REVIEWING of what is
going wrong. What is the trader doing now that they didn't do in
the past. Or what are the MARKET conditions like now as it
relates to past conditions?
My losing streaks usually come right at a bottom of a decline and
I get another losing streak right after a market advance. I know
this to be true and know that the losing streaks are about to
come but just never know when they will come. Yes... I continue
to short/put weak stocks when the bullish percent charts are
falling and go below 30% and into the more oversold levels and
sure enough, at some point, I see losses in my short/put
positions. The only way I survive the losing streak is that when
the bullish % charts become more oversold, I lessen my trade size
(capital exposed) as I "know" that at some point, things are
going to reverse. Since I don't know the exact date of the
reversal and still have an observation that the stock I'm trading
should trade lower, I still want bearish exposure to things. If
I've done my "homework" and have selected a weak stock with good
downside, the with a "little luck" I'll make money. However, I
don't count on that "luck" to help me out with a stronger stock
that is only drifting lower due to the more bearish market
environment.
So lets address this traders losing streak of 8 losses. I
immediately "know" what this trader is doing wrong, or at least I
know by what he said what may be wrong. Do you?
He's using a stop in his options trade. Like the baseball
pitcher that is now dipping his shoulder when delivering the
pitch, witch has created his "losing streak," the trader is now
using stops when he didn't use stops before and was making money.
I know why he is not using stops, but the trader needs to
understand that the reason he is now using stops is because of
the car wreck he was in, that had him in the hospital and not
able to manage his trades.
Wow! I've thought of this for myself. What if something happens
to me where I'm laid up in the hospital? I'm not married, my
brother and sister nor my parents have any idea of where my
trading account/investments are located. Heck... I don't think
they even know what a "stop loss" order is!
Now, I'm not saying that stops are a "bad thing," but I see what
this trader is doing NOW, that he DID NOT do in the past.
Perhaps this is a correction/adjustment that needs to be made.
Again... I didn't get a response from the above trader, but I'd
also look at the "timing" of when he was in the hospital and his
account took a hit. Was it a couple of weeks ago when the
bullish % were all "oversold" and at higher risk levels for
bearish traders?
When looking at the last 8 losing trades. Separate those trades
into put/call or bullish/bearish. If all 8 trades are bearish
trades, then there's another clue to what could be causing the
"losing streak." Once a problem is identified..... STOP DOING
IT! I'm as guilty of this as anyone and sometimes I get so
disgusted with myself that I begin talking out loud and telling
myself what a stupid trade that was. "Why do you keep buying
puts when they keep generating losses," I'll say. My answer then
is... "the bullish % aren't showing any type of rebound at this
point and these stocks still appear weak." Then I get the clue
that the MARKET is at a HIGH RISK level for bears and a reversal
in the bullish % charts are most likely in the making.
Still.... review these losing trades. What "kind of stocks are
they?" Technology? What sector? Try to find COMMONALITY.
Traders get in habits. This is good! Habits are good as long as
the MARKET agrees with you and the trades are working in your
favor. I'm the kind of trader that when I find success in a
certain point and figure chart pattern, or certain sector, I'll
concentrate my efforts of trading in that pattern and sector as
long as its working. I'll keep going and going and going on that
pattern (out of habit, which is discipline) until it STOPS
working and something changes (the MARKET decides valuations have
changed and the trend/pattern has been played out). It may take
me a trade or two to eventually figure this out, but its when I
have three or four losing trades in a row that I then start
talking to myself and come to the realization that its time to
move on to something else.
Some losing streaks I've seen other traders have is that a trade
pattern of buying a "breakout" above 5-day consolidation that
worked so well in the late 90's doesn't work as well in today's
markets, but I'll see a trader continue and continue to trade a
breakout like this, only to have the stock shoved back down into
the consolidation or toward a larger base and create a losing
trade. Totally oblivious that this pattern is no longer as
"predictable" in today's market, they'll play that pattern three
days later with similar result, and then do it again next week.
One way to break a losing streak is to forget what you BELIEVE
and trade what you OBSERVE. I don't know for fact that the
trader experiencing an 8-trade losing streak is really observing
anything technical that developed his bias, or if the 8-trade
losing streak is attributed to a "belief" that the MARKET just
isn't agreeing with. If you find that 6 of the 8 trades are all
"semiconductor-related" puts, then it could mean that the trader
should stop putting semiconductor stocks, regardless of his
belief. This can only be uncovered in the review process.
One way to break a losing streak is to trade a listed stock on
the NYSE. How many letters are in the stock's symbol that make
up your losing streak? 1,2 or 3, or are there 4 letters in the
stock's symbol? When I first started trading and not investing,
the term "day trading" had not yet become popular. I'd sit and
watch the broker (we were supposed to be prospecting new clients,
not trading our own accounts) next to me trade his own account
and he wouldn't look at anything with more than 3-letters in the
stock's symbol. I'd say... "what do you think of INTC," and he'd
basically ignore me and say it had too many symbols. He
preferred to trade more "consistent" stocks.
I came to agree with his observation over time. Trading 3-
lettered stocks in my opinion is a good way to break a losing
streak. It is my opinion that 3-lettered stocks that trade on
the NYSE have the bulk of order flow going through ONE system and
the specialist. Four-lettered stocks on the NASDAQ are routed
through various networks and you the trader are up against market
makers that at various times will "manipulate" bids and offers
around as they have a vested interest in where/how the stock
trades as it relates to orders pending from their institutional
customers. Create "false breakouts" to suck in some day traders
to create liquidity to sell into (false breakdowns to suck in
some shorts, fill a large order, then take it higher). This
isn't to day that listed stocks on the NYSE won't see some of the
same type of "trickery," but based on my observation, less
prevalent than NASDAQ.
Don't get me wrong. A trader that studies market makers and
learns their "tricks" can get inside the market makers head, play
his game and use his institutional buying/selling power to
profit. However, if you're trying to break a losing streak, then
perhaps getting away from the NASDAQ and market makers for a
little while may be the break you really need.
I laugh sometimes when a fellow trader won't trade a stock
because it is a "boring" stock that isn't technology, or its not
listed on the NASDAQ. The term "boring" often comes from the
stock being a "drug" stock, or "chemical" stock that is listed on
the NYSE. Sure its boring, if boring is defined as the stock not
whipsawing or fluctuating around on a daily or weekly basis.
While the trader "loves" the excitement of a technology stock
that is more volatile, it can be this very type of volatility,
that has your stops being triggered, that is creating your losing
streak to begin with!
To break a losing streak, you, just like a pitcher, has to see
modest success, before you can get back on track.
I've seen traders that have been on a losing streak, "throw out"
their "old" system of trading altogether and take up a new and
unfamiliar system/style of trade as if that has to be the answer.
This makes about as much sense as telling a right-handed pitcher
to start throwing the ball with his left hand to break his losing
streak.
When you think you've found "the problem" then take it slow!
Instead of buying 10 contracts like you have been before and
during the losing streak, start out with just one. Is the
"problem" I think I found now corrected? Find out with a smaller
trade size first. Don't go changing things and continue to risk
the same amount of capital.
I'll play psychologist for a minute. A GREAT way to get ONTO a
losing streak is to have one VERY BAD trade that creates a larger
loss than the trader had every imagined possible. The losing
steak is found when the OPTIONS trader that used to buy MINIMUM
3-month expiration for an in-the-money option, begins to buy
CURRENT MONTH expiration in OUT-THE-MONEY expiration in hopes of
making up the large loss in short amount of time. What tends to
happen here is that the trader OVERLEVERAGES in the trade, is
FORCED to use stops, and boom, boom, boom, boom, boom the losing
streak is underway as trade after trade of this type is stopped
out.
Good traders that take one "unlucky" hit that they made a very
OVERLEVERAGED bet on, will often times lose their prior trading
discipline. For instance... you may have been a trader that only
traded once or twice a week and were very patient. All of a
sudden, your account get hit hard and the next thing you're doing
is making 3 trades a day and 15 trades a week in and effort to
recoup a prior loss immediately!
Conclusion:
To help break a losing streak, the FIRST thing YOU have to do is
REVIEW those losing trades and try to "categorize" them.
REVIEWING the losing trades and make note as to date the trade
was initiated. To do this, take 8 of those 3m sticky notes and
write down on each one the stock's symbol, sector/product or
service it provides, date of trade, price of stock trade was
triggered, and where the stock was trading relative to its 21-
day, 50-day and 200-day SMA. Then check those dates against
other indicators you deem important like the bullish % and major
index levels of trade. Once you've done that, if you were
"stopped out" where is the stock trading now? Has it traded the
direction (up or down) like you initially thought it would? If
so, why aren't you still in the trade? Is it because you are now
using "hard stops" and not "mental stops" like you were before
the losing streak began, or choosing incorrect option parameters
as it relates to in or out the money and expiration? Once you've
done this, lay those 8 sticky notes in front of you and try to
solve the puzzle, looking for COMMONALITY.
For "best results" you'll want to compare these 8 "losing streak"
trades against profitable trades you had made before the losing
streak began. If you wound up in the hospital two months prior
to the losing streak, there's going to be a time delay, but the
21-day, 50-day and 200-day SMA comparisons along with the bullish
% may hold the clue!
You only have to do this once and from then on, any losing streak
a trader experiences, will be easily done in your mind.
To break a losing streak, try and get AWAY from VOLATILITY and
move your trading focus to "stodgy" or "borings" stocks where you
can still make good money from directional trading. If you're a
trader that feels you have to use "hard stops" then don't try and
trade volatility, trade stodgy.
Losing streaks are tough. They are psychologically damaging and
can really have a trader doing things they wouldn't have normally
done with their account.
There can be many reasons for this, but the first and most
important thing to do is to realize the you're on a losing streak
(VERY IMPORTANT) and STOP doing whatever it is that you're doing!
The only way I know of to STOP doing what your doing that is
WRONG is to establish some type of review process.
In a previous Ask the Analyst column "Your account is your
business" http://www.OptionInvestor.com/ask/ask_111702_1.asp
one part of the trader's business plan was to REVIEW the account
each week and make some notes as to what is going on with various
trades that are open, but also those that were closed out.
A trader that gets on a losing streak needs to look at what YOU
are doing different first. If YOU aren't doing anything
different, then it must be the MARKET.
The "easiest" mistakes to correct when experiencing a losing
streak is the mistakes the TRADER is making. The MARKET doesn't
make mistakes, at least not for long.
I love the term "the market extended an eight-day losing/winning
streak...." No, MARKET didn't extend a streak, but traders did.
YOU can correct the losing streak. You'll find the answer. Just
stop trading for a couple of days, spend some time in a REVIEW
process. Have you changed your trading style recently, or has
the MARKET changed to a degree that has your "old style" just
needed a little fine-tuning?
As a final note. I've written in recent months that the current
market environment is DIFFICULT to trade, and to help trade it
"profitable" traders may have wanted to REDUCE their position
size (capital exposure) to allow for volatility and give room to
their trades.
While I can't guarantee anything, I would think the bulk of
"losing streaks" than many will not confess to can be attributed
in options trading, is the use of HARD STOPS when trying to trade
stocks that were VOLATILE before any event of war was impacting
the market.
Option traders SHOULD have an advantage over stock traders in an
UNCERTAIN market environment as they can expose LESS CAPITAL to
GREATER VOLATILITY, which options should really benefit from.
However, if you're an options trader that isn't adjusting to what
the MARKET dictates and keep getting "hard stopped" because you
have more capital at risk than perhaps the MARKET environment
allows, then this could well be the cause for a lot of losing
streaks that a trader might be experiencing.
Jeff Bailey
*************
COMING EVENTS
*************
==========================================
Market Watch for the week of April 7th
==========================================
------------------------
Major Earnings This Week
------------------------
Symbol Company Date Comment EPS Est
------------------------- MONDAY -------------------------------
ABER Aber Diamond Corp Mon, Apr 7 -----N/A----- N/A
AMB AMB Property Corp Mon, Apr 7 After the Bell 0.51
------------------------- TUESDAY ------------------------------
ISCA International Spdway Tue, Apr 8 Before the Bell 0.47
RI Ruby Tuesday Tue, Apr 8 -----N/A----- 0.38
----------------------- WEDNESDAY -----------------------------
ABT Abbott Laboratories Wed, Apr 9 -----N/A----- 0.51
STZ Constellation Brands Wed, Apr 9 After the Bell 0.41
DNA Genentech, Inc. Wed, Apr 9 After the Bell 0.28
MDC M.D.C Holdings Wed, Apr 9 -----N/A----- 1.31
SJR Shaw Communications Wed, Apr 9 Before the Bell N/A
SDX Sodexho Alliance S.A. Wed, Apr 9 Before the Bell N/A
------------------------- THURSDAY -----------------------------
ADX Adams Express Thu, Apr 10 -----N/A----- N/A
BRO Brown & Brown Thu, Apr 10 After the Bell 0.38
CBH Commerce Bancorp, Inc Thu, Apr 10 -----N/A----- 0.58
DJ Dow Jones & Company Thu, Apr 10 Before the Bell 0.10
FDC First Data Thu, Apr 10 Before the Bell 0.37
DA Groupe Danone Thu, Apr 10 During the Market N/A
GTK GTECH Holdings Corp. Thu, Apr 10 Before the Bell 0.62
INFY Infosys Tech LTD Thu, Apr 10 Before the Bell 0.40
IFIN Investors Finl Serv Thu, Apr 10 Before the Bell 0.29
IYCOY Ito-Yokado Thu, Apr 10 -----N/A----- N/A
JNPR Juniper Networks Thu, Apr 10 -----N/A----- 0.01
MTB M&T Bank Corporation Thu, Apr 10 -----N/A----- 1.28
NET Network Associates Thu, Apr 10 Before the Bell 0.12
PIR Pier 1 Imports, Inc. Thu, Apr 10 Before the Bell 0.57
RAD Rite Aid Corporation Thu, Apr 10 Before the Bell 0.01
STI SunTrust Thu, Apr 10 Before the Bell 1.16
SVU Supervalu Inc. Thu, Apr 10 -----N/A----- 0.48
SSP The E.W. Scripps Co Thu, Apr 10 Before the Bell 0.66
------------------------- FRIDAY -------------------------------
CX CEMEX S.A. Fri, Apr 11 06:00 am ET 0.51
FAST Fastenal Fri, Apr 11 -----N/A----- 0.26
GE General Electric Fri, Apr 11 -----N/A----- 0.32
MI Marshall & Ilsley Fri, Apr 11 Before the Bell 0.56
SPOT PanAmSat Fri, Apr 11 Before the Bell 0.14
SUP Superior Industries Fri, Apr 11 Before the Bell 0.83
----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------
Symbol Company Name Ratio Payable Executable
UCBH UCBH Holdings 2:1 Apr. 8th Apr. 9th
AVD American Vanguard Corp. 3:2 Apr. 11th Apr. 14th
TTC Toro Company 2:1 Apr. 14th Apr. 15th
--------------------------
Economic Reports This Week
--------------------------
The Q1 Earnings Season is about to begin. The stream of earnings
begins on Thursday. The latter half of this week will also has
a host of economic reports, mainly the PPI, Retail Sales and
Sentiment numbers all on Friday.
==============================================================
-For-
Monday, 04/7/02
----------------
Consumer Credit (AB) Feb Forecast: $2.5B Previous: $13.2B
Tuesday, 04/8/02
-----------------
Wholesale Invntries(NA) Feb Forecast: 0.0% Previous: -0.1%
Wednesday, 04/9/02
-------------------
None
Thursday, 04/10/02
------------------
Initial Claims (BB) 04/05 Forecast: N/A Previous: 445K
Export Prices ex-ag.(BB)Mar Forecast: N/A Previous: 0.5%
Import Prices ex-oil(BB)Mar Forecast: N/A Previous: 0.4%
Trade Balance (BB) Feb Forecast:-$42.4B Previous: -$41.1B
Friday, 04/11/02
----------------
PPI (BB) Mar Forecast: 0.4% Previous: 1.0%
Core PPI (BB) Mar Forecast: 0.0% Previous: -0.5%
Retail Sales (BB) Mar Forecast: 0.2% Previous: -1.6%
Retail Sales ex-auto(BB)Mar Forecast: 0.3% Previous: -1.0%
Mich Sentiment-Prel.(DM)Apr Forecast: 77.6 Previous: 77.6
Definitions:
DM= During the Market
BB= Before the Bell
AB= After the Bell
NA= Not Available
------------------------------------------------------------
We got trailing stops!
Trade online with trailing stops at optionsXpress, at no extra cost
Trailing stops based on the option price or the stock price
Also place Contingent, Stop Loss, and "One Cancels Other" orders
$1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees!
Go to http://www.optionsxpress.com/marketing.asp?source=oetics23
Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------
*********************
SWING TRADE GAME PLAN
*********************
You're Getting Sleepy... Very Sleepy
Wake me up when we stop drifting. That's how I felt for most of
the day on Friday, as the markets mostly churned, with traders
afraid to take a side as U.S. troops continue their assault on
Baghdad
To read the rest of the Swing Trader Game Plan click here:
http://www.OptionInvestor.com/itrader/indexes/swing.asp
FREE TRIAL READERS
******************
If you like the results you have been receiving we
would welcome you as a permanent subscriber.
The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.
We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.
To subscribe you may go to our website at
www.OptionInvestor.com
and click on "subscribe" to use our secure credit
card server or you may simply send an email to
Contact Support
with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.
You may also fax the information to: 303-797-1333
**********
DISCLAIMER
**********
Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
**************************************************************
ADVERTISING INFORMATION
For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:
Contact Support

The Option Investor Newsletter Sunday 04-06-2003
Sunday 2 of 5
In Section Two:
Daily Results
Call Play of the Day: IGT
Put Play of the Day: NOC
Dropped Calls: STN
Dropped Puts: CB
------------------------------------------------------------
Quit paying fees for limit orders or minimum equity
No hidden fees for limit orders or balances
$1.50 /contract (10+ contracts) or $14.95 minimum.
Zero minimum deposit required to open an account
Free streaming quotes
Go to http://www.optionsxpress.com/marketing.asp?source=oetics24
Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------
***********************************************************
DAILY RESULTS
***********************************************************
For Best Alignment view in Courier Ten Font
*******************************************
CALLS Mon Tue Wed Thu Week
BLL 57.42 -0.40 1.21 1.40 -0.54 1.32 Higher Ground
BVF 42.00 0.07 1.19 1.41 -0.45 2.20 Held $42
IGT 82.18 0.05 -1.56 0.51 -0.39 0.33 New,Bounce
MEDI 33.57 -0.61 -0.18 -0.58 0.50 0.13 In Channel
MMM 133.98 0.75 -0.57 2.82 0.19 6.06 C'mon $135
STN 21.19 -0.27 -0.47 0.49 -0.18 -0.19 Drop, waiting
UNH 92.33 0.17 -0.39 0.39 1.33 0.83 Testing top
WFMI 56.63 0.14 0.78 1.57 -1.70 1.13 Holding trend
PUTS
CB 45.99 0.42 0.85 0.93 0.24 2.09 Drop, sideways
CDWC 40.91 0.33 -0.80 1.95 -0.29 0.44 channeling
LLL 39.08 -0.83 0.41 -0.61 -0.87 -1.92 Small bounce
NOC 83.26 -0.96 0.25 -0.26 -0.52 -2.54 New, War play
ROOM 54.35 -0.08 -2.00 -1.11 0.31 -3.40 Still weak
WHR 50.88 -0.30 0.66 2.26 -0.65 1.55 200-dma roll
------------------------------------------------------------
optionsXpress has "...a lot of bang for the buck."--Barron's
$1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees
Easy screens for spreads, collars, or covered calls!
Contingent, Stop Loss, Trailing stop, or OCO
8 different online tools for options pricing, strategy, and charting
Go to http://www.optionsxpress.com/marketing.asp?source=oetics25
Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------
********************
THE PLAYS OF THE DAY
********************
Call Play of the Day:
*********************
Intl. Game Tech. - IGT - close: 82.18 change: +1.16 stop: 78.50
See details in play list
Put Play of the Day:
********************
Northrop Grumman - NOC - close: 83.26 change: -3.22 stop: 88.02
See details in play list
**************************
PICKS WE DROPPED THIS WEEK
**************************
Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.
CALLS
^^^^^
Station Casinos - STN - close: 21.19 change: +0.24 stop: 19.75
STN has gone into consolidation between $21 and $22. We think
the stock may still have some upside, especially on a break over
$22. We are dropping coverage because we really have no
indication of how long the current consolidation will last and
are not recommending new entries until the stock makes it over
$22. That doesn't necessarily mean that current call holders need
to drop the play if the stock remains over our stop (19.75), just
that we are on hold for the moment. Traders can watch that $22
level for new entries or to add onto to current positions.
However, be aware that if the stock continues to stick to the
current range, option premiums may erode to the point where the
play is no longer profitable.
PUTS
^^^^
Chubb Corporation - CB - close 45.99 change: +0.01 stop: 46.50
Despite a good start with an initial drop below the $44 level, CB
caught a lift back to the $46 level by the middle of last week and
has just stalled out there. While the stock's inability to
advance further does look bearish, we're concerned that a positive
market next week could provide an additional lift and we don't
want to take that risk. CB could still roll over next week and
traders that want to remain in the play should maintain their stop
at $46.50. We're going to drop it this weekend, as its lack of
downside action has us thinking that there are better
opportunities to be found elsewhere.
Picked on March 25th at $45.73
Change since picked: +0.26
Earnings Date 04/30/03 (unconfirmed)
Average Daily Volume = 1.43 mln
***********
DEFINITIONS
***********
SL = Suggested stop loss. Sell if bid breaks this price.
OI = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume
The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.
Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;
Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"
Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.
RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.
------------------------------------------------------------
WINNER of Forbes Best of the Web Award
optionsXpress voted Favorite Options Site by Forbes
Easy screens for spreads, collars, or covered calls
Free streaming quotes
Real-time option chains, charts + calculators
Go to http://www.optionsxpress.com/marketing.asp?source=oetics21
Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------
**********
DISCLAIMER
**********
Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
**************************************************************
ADVERTISING INFORMATION
For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:
Contact Support

The Option Investor Newsletter Sunday 04-06-2003
Sunday 3 of 5
In Section Three:
New Calls: IGT
Current Calls: BLL, BVF, MMM, UNH, WFMI
New Puts: JCP, NOC
------------------------------------------------------------
VOTED one of "Best Online Brokers" (4 stars)--Barron's
optionsXpress's "order-entry screens...go far beyond...
other online broker sites"--Barron's
8 different online tools for options pricing, strategy, and charting
Access to options specialists via email, phone or live chat online
Real-Time Buying Power, Account Balances or Cancels
Go to http://www.optionsxpress.com/marketing.asp?source=oetics22
Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------
**************
NEW CALL PLAYS
**************
Intl. Game Tech. - IGT - close: 82.18 change: +1.16 stop: 78.50
Company Description:
IGT is a manufacturer of computerized casino gaming products and
an operator of proprietary gaming systems. The company serves
the casino gaming industry in the United States as well as
manufacturing gaming products in the United Kingdom and through a
third party manufacturer in Japan. IGT provides gaming products
in every significant legalized gaming jurisdiction in the world.
Why we like it:
Largely ignored by investors throughout the late 1990s, gaming
stocks have become the "must have" in recent years. Apparently,
no matter what is happening with the economy, people still find
the money to gamble. IGT was a little know $20 stock in early
2000, but since the rest of the market began to implode, IGT has
launched on a powerful bull run that continues to blast to new
highs. From October of 2002 through the middle of March, the
stock had been finding strong resistance at the $79-80 level, and
then it blew through that level as the broad market recovered
from its recent lows. After hitting a new high just above $87 on
March 21st, the stock pulled back sharply and now appears to be
consolidating just above the $80 level, showing that old
resistance is now acting as support.
IGT has continued to impress the street with increasing revenues
and increasing earnings throughout the past 3 years, and that is
the primary reason for the continued strong price performance.
Despite several downgrades in the past couple weeks (based on
valuation), the fact that IGT has held above important support
indicates that there is still significant upside in the stock.
We'll get another look at the company's performance when it
releases earnings on April 22nd, although we'll exit the play
before that report. That gives a little over 2 weeks for the
bullish action we expect to unfold.
A look at the PnF chart shows the significance of that $79-80
level, while the daily chart is showing that the 20-dma
(currently 81.28) is helping to support the stock. Despite the
fact that a trade at $80 would generate a PnF Sell signal, we're
going to give the play a bit more room than that. Only a trade
at $79 would produce what looks like a real PnF Sell signal (a
two-box breakdown) and would have us conceding a trend reversal.
For that reason, we're setting our initial stop rather wide at
$78.50. The best setup for new entries appears to be a pullback
and rebound from above the $80 level, most likely at the 20-dma.
However, traders looking to enter on strength can use a rally
through the $82.50 level (near resistance) or a push through $84
to enter the play. Our initial target will be a return to the
recent highs near $87 and then a breakout and move to the $90
round number resistance. The current price target from the PnF
chart is $95.
Suggested Options:
Shorter Term: The April 80 Call will offer short-term traders the
best return on an immediate move, with manageable risk.
Aggressive traders can look to use the April 85 Call, but must
understand that with expiration only 2 weeks away, time decay
will be a significant factor unless IGT moves higher in the very
short term.
Longer Term: Traders looking to capitalize on a move back towards
the recent highs over the next few weeks will want to look to the
May 85 Call or even the July 85 Call. These options are
currently out of the money, but should provide sufficient time
for the stock to move higher without time decay becoming a
dominant factor over the short run.
BUY CALL APR-80 IGT-DP OI=3814 at $3.40 SL=1.75
BUY CALL APR-85 IGT-DQ OI=3057 at $0.90 SL=0.50
BUY CALL MAY-85 IGT-EQ OI= 165 at $2.20 SL=1.00
BUY CALL JUL-85 IGT-GQ OI=1110 at $4.10 SL=2.50
Annotated Chart of IGT:
Picked on April 6th at $82.18
Gain since picked: +0.00
Earnings Date 04/22/03 (confirmed)
Average Daily Volume = 1.23 mln
------------------------------------------------------------
We got trailing stops!
Trade online with trailing stops at optionsXpress, at no extra cost
Trailing stops based on the option price or the stock price
Also place Contingent, Stop Loss, and "One Cancels Other" orders
$1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees!
Go to http://www.optionsxpress.com/marketing.asp?source=oetics23
Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------
******************
CURRENT CALL PLAYS
******************
Ball Corporation - BLL - close: 57.42 change: -0.35 stop: 55.50
Company Summary:
Ball Corp. is a manufacturer of metal and plastic packaging,
primarily for beverages and foods, and a supplier of aerospace
and other technologies and services to commercial and
governmental customers. Ball's principal business is the
manufacture and sale of rigid packaging products, primarily
for beverages and foods. Polyethylene terephthalate packaging
is the company's newest product line. The aerospace and
technologies segment includes civil space systems, defense
operations and commercial space operations. The defense
operations business unit includes defense systems, systems
engineering services and advanced antenna and video systems, as
well as electro-optics and cryogenic systems and components.
Why We Like It:
Following an impressive breakout last week, our BLL play is
undergoing some necessary consolidation. That breakout pushed the
stock to $57 on Tuesday, which was followed by a powerful gap
higher on Wednesday, with BLL reaching as high as $58.60 by the
close. As most are, that gap is a magnet that is begging to be
filled and with some weakness showing up ahead of the weekend,
that objective was almost accomplished on Friday. The bottom of
the gap is $56.91, while Friday's intraday low was $57.13. In
addition to the bottom of the gap, BLL should continue to find
support at the 10-dma (now at $56.65), which is further
strengthened by historical support (broken resistance) just above
$56. Once the gap is filled in, a rebound from any of these areas
of support should make for solid entry points ahead of the next
upward push. While momentum entries don't look favorable to us at
this time, those traders that choose to employ that strategy will
need to wait for a breakout above $59. Note that with the BLL's
gains last week, the PnF bullish price target grows from $69 to
$75, so there is still lots of potential upside.
Suggested Options:
Shorter Term: The April 55 Call will offer short-term traders a
solid return on an immediate move, but this is a higher risk
approach due to the stock's slow-moving nature and the approach of
April expiration. The May 55 Call offers more profit on a move
higher, and given the fact it is currently in the money and has 6
weeks until expiration, looks to be the better option for a short-
term move.
Longer Term: Traders looking to capitalize on a move towards the
PnF target of $75 may want to look to the May 60 Call or even the
AUG 60 Call. This provides more time for the stock to move higher
without time decay becoming a dominant factor over the short run.
BUY CALL APR-55 BLL-DK OI= 434 at $3.30 SL=1.75
BUY CALL MAY-55 BLL-EK OI=5197 at $4.30 SL=2.75
BUY CALL MAY-60 BLL-EL OI= 438 at $1.55 SL=0.75
BUY CALL AUG-60 BLL-HL OI= 333 at $3.30 SL=1.75
Annotated Chart of BLL:
Picked on March 21st at $55.87
Change since picked: +1.55
Earnings Date 04/24/03 (confirmed)
Average Daily Volume = 445 K
---
Biovail Corporation - BVF - close: 42.00 change: -0.02 stop: 40.50
Company Summary:
Biovail Corporation is a full-service pharmaceutical company that
applies its proprietary drug delivery technologies in developing
oral controlled-release" products throughout North America. The
company applies its proprietary drug delivery technologies to
successful drug compounds that are free of patent protection to
develop both branded and generic oral controlled-release products.
BVF has applied its technologies to develop 18 products to date
and currently has 16 others under development.
Why We Like It:
Breakout gaps were a common sight last Wednesday, as the broad
market gapped higher and held those gains throughout the week.
Similarly, BVF gapped up to the $42 level and spent the remainder
of the week trying to advance further (and failing), but amazingly
holding above the top of the gap. It's now a matter of letting
the stock consolidate its recent gains before once again pushing
higher. Ideally, BVF will dip to fill the gap down to the $41
level, find support (reinforced by the 10-dma) and give us a solid
entry on the rebound. A measure of the strength of BVF's strength
can be found in the daily Stochastics oscillator, which hasn't
visited the oversold region since late January. The importance of
noticing this behavior is that it tells us that brief dips in this
oscillator are not likely to indicate an end to the trend unless
the dip comes on increasing volume.
Suggested Options:
Shorter Term: Due to the slow-moving nature of BVF, we're
recommending that short-term traders focus on the April or May 40
call, which are currently in the money.
Longer Term: Even those traders with a longer-term horizon should
focus on the at the money option. The premium is reasonable due
to the lack of volatility, and should provide a solid return on a
breakout move. If looking to play for the really long term, the
July 40 Call looks like the best combination, as it is slightly
out of the money, but has plenty of time until expiration.
BUY CALL APR-40 BVF-DH OI=7123 at $2.75 SL=1.25
BUY CALL MAY-40 BVF-EH OI= 329 at $3.70 SL=2.00
BUY CALL MAY-45 BVF-EI OI= 426 at $1.25 SL=0.60
BUY CALL JUL-45 BVF-GI OI=1208 at $2.55 SL=1.25
Annotated Chart of BVF:
Picked on March 14th at $39.06
Change since picked: +2.94
Earnings Date 04/25/03 (unconfirmed)
Average Daily Volume = 1.11 mln
---
3M Company - MMM - close: 133.98 change: +0.13 stop: 129.75
Company Description:
Commonly known as the maker of the ubiquitous, adhesive-backed
Post-It Notes, MMM is also a leading manufacturer of a variety of
industrial, consumer, and medical products. Reflective sheeting
on highway signs, respirators, spill-control sorbents, and
Thinsulate brand insulations are just some of the company's
industrial products. MMM also makes microbiology products, making
it easier for food processors to test for the microbiological
quality of food.
Why we like it:
Last week certainly didn't lack for excitement, at least where our
MMM play is concerned. Beginning with a sharp plunge at the open
on Monday, the stock quickly rebounded to close right at $130, and
then used that level as a springboard for the gains into the end
of the week. Like the rest of the market, the stock gapped up
strongly on Wednesday, but couldn't hold on to its highs and
slipped back a bit at the close. The past 2 days have seen
fractional gains on a closing basis, but the Doji candlestick
patterns hint at indecision at these levels. That much is
confirmed by the fact that MMM has not been able to match its
intraday high of $134.95 on this rise, with Thursday's intraday
high of $134.92. The conviction just isn't there. At least not
yet. While a breakout over the $135 level would be an encouraging
sign and a viable momentum entry for aggressive traders, we're
still looking for Wednesday's gap to fill as the next high odds
entry point into the play. A dip and rebound from the $131 area
looks like the best conservative entry into the play, although we
may now see the top of that gap near $132 provide solid support,
as that level coincides nicely with the sharply rising 10-dma at
$131.94. Traders still looking for an entry into the play will
want to monitor the action in the broad market for confirmation of
strength before taking the plunge. Until MMM can crest and close
above $135, we'll maintain a relatively wide stop at $129.75.
Suggested Options:
Shorter Term: The April 135 Call will offer short-term traders a
solid return on an immediate move, with manageable risk. The
April 130 Call offers more profit on a move higher, given the fact
it is currently in the money, but also offers more downside risk
if the stock pulls back.
Longer Term: Traders looking to capitalize on a move towards the
PnF target of $172 may want to look to the May 135 Call. This
provides more time for the stock to move higher without time decay
becoming a dominant factor over the short run.
BUY CALL APR-130 MMM-DF OI=8633 at $5.30 SL=3.25
BUY CALL APR-135 MMM-DG OI=8696 at $2.15 SL=1.00
BUY CALL MAY-130 MMM-EF OI= 332 at $7.50 SL=5.25
BUY CALL MAY-135 MMM-EG OI= 548 at $4.40 SL=2.75
Annotated Chart of MMM:
Picked on March 27th at $131.66
Change since picked: +2.32
Earnings Date 04/21/03 (confirmed)
Average Daily Volume = 2.32 mln
---
United Health - UNH - close: 92.32 change: -0.68 stop: 89.48
Company Description:
UnitedHealth Group is a diversified health and well-being
enterprise that provides a full spectrum of resources and
services to help people achieve improved health and well-being
through all stages of life. UnitedHealth Group is organized into
five businesses: UnitedHealthcare, Uniprise, Ovations,
Specialized Care Services, and Ingenix (source: company press
release)
Why we like it:
UNH has acted pretty much as expected since we added it on March
25. The first breakthrough of the 200-dma since November led the
stock to a breakout that found resistance in the $94-$96 zone we
highlighted in the original write-up. It did experience several
pullbacks along the way, but none great enough to take it out of
its channel. The pullback tot he 200-dma gave traders who
targeted that suggested entry a chance to get in lower, but even
those traders entering on the breakout look good right now. The
stock failed on attempts to crack $94 the past two days, but
appears to have now found support above the $90 level that had
acted as previous resistance. The action in UNH looks a lot like
the HMO Index (HMO.X), which has also just crossed over the 200-
dma. New entries in this play can be targeted on a pullback
above $90, or with partial positions above $94 and again on a
break above $96. Our target remains $100, but we are raising our
stop to $89.48, just below the most recent pullback and to allow
for a test of $90.
BUY CALL APR-85 UHB-DQ OI=3998 at $8.20 SL=4.10
BUY CALL APR-90 *UHB-DR OI=3414 at $4.10 SL=2.05
BUY CALL JUN-90 UHB-FR OI=4642 at $6.60 SL=3.30
BUY CALL JUN-95 UHB-FS OI=1465 at $3.80 SL=1.90
Picked on March 25th at $90.66
Change since picked: +1.66
Earnings Date 04/216/03 (unconfirmed)
Average Daily Volume = 2.12 mln
---
Whole Foods Mkt - WFMI - close: 56.63 change: +0.34 stop: 54.50
Company Description:
Whole Foods Market, Inc. owns and operates a chain of natural and
organic foods supermarkets in the United States. As of September
2002, the company operated 135 stores in 25 states plus the
District of Columbia and Canada. The company offers a broad
product selection with a heavy emphasis on perishable foods
designed to appeal to both natural foods and gourmet shoppers.
Its product categories include produce, seafood, grocery, meat and
poultry, bakery, prepared foods and catering, specialty (beer,
wine and cheese), whole body (nutritional supplements, vitamins
and body care), pet products and household products.
Why we like it:
Like so many other stocks that surged powerfully higher on
Wednesday, our WFMI play is playing the consolidation game right
now. The bulls didn't have enough fuel to manage a breakout over
the $58.25 resistance from the prior week and the stock fell back
on Thursday to fill that gap. Friday's session presented us with
a fairly small-range consolidation session, above the $56 support
level, but never challenging upper resistance. Support appears to
be firming up in the $55-56 area, and buying the dips in that area
seems to be the best entry strategy right now. The one thing that
causes us concern on this play right now is the volume picture.
Thursday's decline came on the heaviest volume in over a week and
the bounce back on Friday came on the lightest volume in nearly a
month. This could just be due to the rather light volume seen
throughout the broad market on Friday, but it is a point of
concern. Our stop has been raised to $54.50, which is the site of
the 2-month ascending trendline, and should provide strong support
on any more significant pullback.
Suggested Options:
Shorter Term: The April 55 Call will offer short-term traders the
best return on an immediate move, with manageable risk. Due to
the relatively slow-moving nature of WFMI, the May 55 Call may be
the better choice for a short term play.
Longer Term: Traders looking to capitalize on a move towards the
$60 level may want to look to the May 60 Call or even the AUG 60
Call. These options are currently out of the money, but should
provide sufficient time for the stock to move higher without time
decay becoming a dominant factor over the short run.
BUY CALL APR-55 FMQ-DK OI= 516 at $2.65 SL=1.25
BUY CALL MAY-55 FMQ-EK OI=3920 at $3.60 SL=1.75
BUY CALL MAY-60 FMQ-EL OI= 601 at $1.15 SL=0.50
BUY CALL AUG-60 FMQ-HL OI=1137 at $2.75 SL=1.25
Annotated Chart of WFMI:
Picked on April 1st at $56.42
Change since picked: +0.21
Earnings Date 05/08/03 (unconfirmed)
Average Daily Volume = 955 K
*************
NEW PUT PLAYS
*************
Elliott Wave Plays
By Steve Gould
New Bear Play, 4/6/2003
Company Profile
J. C. Penney, JCP, a holding company, provides merchandise and
services to consumers through department stores, catalogs, and
the Internet. JCP also owns and operates drugstores through its
subsidiary, Eckerd Corp.
Chart Analysis
Chart: JCP Daily
JCP has finished the wave 4 and is in the beginning stages of a
final wave 5 down.
The wave 4 meets the following criteria:
1. Retraced wave 3 between 50 – 62%
2. The oscillator has retraced 138%
3. Wave 4 has traced out a nice A-B-C correction
Chart: JCP Weekly
The weekly chart shows a downtrend consistent with the daily.
Trade Setup
Elliott Wave theory tells us that every 1, 3 and 5 wave will
segment into a 5 wave basic pattern. The chart shows us clearly
that the 1 and 2 subwaves of the 5 wave are complete.
Chart: JCP 5 wave
JCP's first target price is 17.50. This is the low of the 3
wave. However, JCP could go as low as 16. We want to give this
play enough time to play out, yet not lose too much to theta
(time) decay. The closest month would be August which is about 5
months out. This will allow us 2-3 months for the trade to play
out before we have to exit due to time constraints. 2-3 months
should be plenty of time.
Option
Sym Strike Type Bid Ask Delta Vol OI
JCPTD 20.00 Put 2.150 2.35 -38.7 0 2687
What If We Are Right
Chart: JCP Position Analysis For The First Target
If the stock tracks down to 17.50 by the middle of May, the value
of the option will have gone from 2.35 to 3.45 for a net profit
of 1.10 or 45% (not including commissions).
Chart: JCP Position Analysis For The Second Target
If the stock tracks down to 16 by the end of June, the value of
the option will have gone from 2.35 to 4.25 for a net profit of
1.90 or 81% (not including commissions).
What If We Are Wrong
Chart: JCP Stop Loss
JCP falls but not to the level of the wave 3. It then reverses
and heads up. As soon as it breaches the wave 1 bottom, this 5
wave basic pattern is complete. Exit the trade when JCP hits
21.75 for a loss of 1.40 or 60% (not including commissions).
Chart: JCP Position Analysis For Stop Loss
Also exit the trade after June 20th. Time decay becomes too much
of a factor and the possibility of any future profits are slim.
---
Northrop Grumman - NOC - close: 83.26 change: -3.22 stop: 88.02
Company Description:
Northrop Grumman Corporation is a $25 billion global defense
company, headquartered in Los Angeles, Calif. Northrop Grumman
provides technologically advanced, innovative products, services
and solutions in systems integration, defense electronics,
information technology, advanced aircraft, shipbuilding and space
technology. With approximately 120,000 employees and operations
in all 50 states and 25 countries, Northrop Grumman serves U.S.
and international military, government and commercial customers.
(source: company release)
Why we like it:
NOC has been the consummate defense sector play, as it has
closely followed the waxing and waning (mostly waning) of the
Defense Index (DFI.X) in recent months. We played it short a
couple of weeks back and saw an immediate return dissipate when
the war in Iraq became more drawn out than many investors were
expecting. However, the renewed interest in this sector, which
may have benefited from a longer war, appears to have vanished
now that U.S. troops are entering Baghdad. A longer war would
have resulted in the need for more rearming and thus more dollars
funneled to the defense industry. However, it now appears that
these stocks are resuming the display of poor relative strength
compared to the rest of the market as they once again head lower.
A look at the relative strength point and figure chart of NOC
versus the S&P 500 shows the stock in full reversal mode and
quickly approaching the bullish support line. Other stocks in the
sector, such as GD have already extended lower, but NOC has been
playing catch-up. We rather get in on a stock with room to go
than one that looks ready for a bounce.
The daily chart on NOC shows a consolidation pattern over the
past couple weeks since we played it that looks like a bearish
pennant that is now breaking down. The stock has formed a double
top pattern and rolled over right at its 50-dma on the last
rebound attempt. The point and figure shows a similar bearish
pennant, with the stock currently heading lower toward a
breakdown at $81 and a new sell signal at $80. The current sell
signal is still good, since it has yet to reverse high enough on
any attempt to cancel it out. The stock is approaching its
bearish vertical count of $79 set back in January, but with the
DFI having set recent all-time lows, we are aiming lower than
that $79 target. Once the stock is below $80, giving that new
sell signal, we'd expect it to take a t run at support from last
summer around $76. If thatt target is achieved, we would set our
sights on $74 and then $70. Because of the last failed bounce
at the 50-dma, we will set our stop just above that level, at
$88.55. More conservative traders, however, can set a stop above
Friday's high (86.41) at 86.55. Ideal entry would come on a
failed rebound to the $86-$87 range, as long as the upper
trendline (shown below) is not broken. However, with the stock
appearing to break its lower trendline on Friday, we also like
entry on a break below Friday's low, using a trigger at $83.24 if
the stock keeps dropping. If it does bounce, however, wait for
that failure to enter.
Short-Term: Traders looking to play a breakdown in NOC can look
at the April 85 put, which will require less premium outlay, but
capture a breakdown in the next couple weeks if the war comes to
an end.
Long-Term: If the conflict in Iraq continues to drag, traders
can look at May or even the summer months for the failed rebound
play from $86-$87. In this case, wait for the bounce and then
look to the 90 strike.
BUY PUT APR-85 NOC-PQ OI=2885 at $3.00 SL=1.50
BUY PUT MAY-90 NOC-QR OI=771 at $7.90 SL=4.00
Chart of NOC
Chart of Defense Index
Picked on April 6 at $83.26
Change since picked: 0.00
Earnings Date 04/29/03 (unconfirmed)
Average Daily Volume = 1.57 mil
------------------------------------------------------------
Quit paying fees for limit orders or minimum equity
No hidden fees for limit orders or balances
$1.50 /contract (10+ contracts) or $14.95 minimum.
Zero minimum deposit required to open an account
Free streaming quotes
Go to http://www.optionsxpress.com/marketing.asp?source=oetics24
Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------
**********
DISCLAIMER
**********
Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
**************************************************************
ADVERTISING INFORMATION
For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:
Contact Support

The Option Investor Newsletter Sunday 04-06-2003
Sunday 4 of 5
In Section Four:
Current Put Plays: AIG, CDWC, LLL, ROOM, WHR
Leaps: Frustration
Traders Corner: Profits Get High With A Little Help From My
Friends
Traders Corner: An Alternate Route
Futures Corner: Money For Nothing - An Introduction to Backtesting
------------------------------------------------------------
optionsXpress has "...a lot of bang for the buck."--Barron's
$1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees
Easy screens for spreads, collars, or covered calls!
Contingent, Stop Loss, Trailing stop, or OCO
8 different online tools for options pricing, strategy, and charting
Go to http://www.optionsxpress.com/marketing.asp?source=oetics25
Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------
*****************
CURRENT PUT PLAYS
*****************
Elliott Wave Play Updates
By Steve Gould
Last week I wrote up AIG stating:
"This is such a textbook setup that I would find it hard to be
wrong. Nonetheless we must consider the possibility."
Well as the market is wanton to do, it proved me wrong. I showed
this graph as a possible wrong scenario.
Chart: AIG wrong
Let's look at the current chart of AIG.
Chart: AIG 4-4-2003
It looks very much like AIG is playing out the scenario where it
is tracing out a more complex 4 wave correction. I anticipate
that the 4 wave will relabel. Nevertheless, as long as AIG stays
below 56.05, this play is still intact.
My recommendation would be to watch AIG. It should test the
currently labeled 4 wave high of 54.78 and most likely continue
up just a little bit more to 56.00. Remember, it can not breach
the wave 1 low of 56.05 otherwise the wave pattern will have to
be relabeled. Therefore, if we add to (or even open) our
position when AIG hits 54.75, our maximum risk would be the 1.25
move to 56.05.
Current option prices for the August Puts are
Sym Strike Type Bid Ask Delta Vol OI
AIGTI 45 Put 1.65 1.75 -18.6 5053 10680
AIGTJ 50 Put 2.90 3.20 -30.5 10 2834
The 50 put is the better choice at this point because of the
higher delta.
AIG is currently at 53.66. When it reaches 54.75, the 50 Put
will be worth about 2.90 with a delta of about -28. If AIG
breaches 56.05, close the position. The maximum risk will be
about .40.
A final note. Look at the volume on the 45 put. It appears
someone is thinking that this stock is headed lower.
---
CDW Computer Centers - CDWC - close: 40.91 change: -0.75 stop: 43.25
Company Description:
CDW ranked No. 414 on the Fortune 500, is a leading provider of
technology solutions for businesses, government agencies and
educational institutions nationwide. CDW is a principal source of
technology products and services including top name brands such
as Cisco, Compaq, Computer Associates, Hewlett-Packard, IBM,
Intel, Microsoft, and Toshiba. CDW distributes contracts to end
users for customized and standardized on-site services supplied
directly by providers such as H-P Services and Unisys and for
training programs provided by firms such as KnowledgeNet and
Productivity Point International. (source: company release)
Why we like it:
CDWC has continued the rollover since Thursday, dropping another
$0.75 on Friday. It ahs remained squarely within its channel and
the 50-dma continues to keep the lid on it. Several techs warned
about earnings on Thursday and Friday, including chip maker
STMicroelectronics (STM) and software makers PeopleSoft (PSFT)
and Siebel (SEBL). This is not only bad news for the tech sector,
but also for a company like CDW that specializes in selling tech
products. The stock's last bounce came from the center of its
current descending channel and conservative traders may want to
wait for a break below $39.00 to put the stock in the bottom half
of that channel. We have maintained our entry trigger of $39.70,
which has yet to be hit, but we also like more aggressive entries
on the rollover from the 50-dma, as we described in our last
write-up. Those traders playing the 50-dma rollover can look to
the 45 strike for maximum profit potential, but also additional
premium risk.
BUY PUT APR-45 DWQ-PI OI=3807 at $4.50 SL=2.25
BUY PUT MAY-40 DWQ-QH OI=329 at $2.50 SL=1.25
Picked on April 1st at $40.00
Change since picked: +0.91
Earnings Date 04/15/03 (unconfirmed)
Average Daily Volume = 2.18 mil
---
L-3 Communications - LLL - close 39.08 change: +0.24 stop: 42.00
Company Description:
As a leading supplier of sophisticated secure communication
systems and specialized communication products, LLL provides
critical elements of virtually all major communication, command
and control, intelligence gathering and space systems. The
company's high data rate communication, avionics, telemetry and
instrumentation systems and components are used to connect a
variety of airborne, space, ground-based and sea-based
communication systems.
Why we like it:
The war continues to go well for the coalition and that doesn't
bode well for Defense stocks, at least not from the look of the
chart of the Defense index (DFI.X). After the plunge to new all-
time lows near $410 in early March, the DFI index has put in a
double top near the $465 level and is starting to roll over once
again, confirmed by the bearish rollover in the daily Stochastics.
With expectations for weakness in the group, our attention was
drawn to LLL due to its relative weakness, and that continues to
be the case with the stock now below all its moving averages.
While LLL did manage to rebound from just above $38 (the top of
the 3/14 gap) on Friday, it is notable that there wasn't enough
buying interest to do much more than stabilize the price. The
critical area right now is the $39.50-40.25, as this is not only
historical resistance, but we have the 10-dma ($40.11), the 20-dma
($39.68) and the 50-dma ($39.60) all clustered together in that
range. A rollover from this area looks like our best setup for
new entries into the play, although we wouldn't rule out the
potential for a bounce as high as the $41 level before the stock
rolls over. Recall that we're looking for an initial downside
target of $37 and an eventual target of $35.50 where LLL found
strong support throughout the first part of March. For that
reason, we aren't advocating entries on breakdowns because of the
unfavorable risk/reward of doing so. Our stop remains at $42.
Suggested Options:
Short-term traders will want to focus on the April 40 Put, as it
will provide the best return for a short-term play. Those looking
for additional staying power to hold through the recent (and
expected future) volatility will want to use the May 40 strike.
Aggressive traders can target a larger move with the May 35 Put
with the understanding that LLL will need to reach our lower
target of $35.50 for that choice to pay off.
BUY PUT APR-40 LLL-PH OI=1214 at $1.85 SL=0.75
BUY PUT MAY-40 LLL-QH OI= 412 at $2.95 SL=1.50
BUY PUT MAY-35 LLL-QG OI= 185 at $0.95 SL=0.50
Annotated Chart of LLL:
Picked on April 3rd at $38.84
Change since picked: +0.24
Earnings Date 04/23/03 (unconfirmed)
Average Daily Volume = 1.58 mln
---
Hotels.com - ROOM - close 54.35 change: -0.52 stop: 58.00
Company Description:
Hotels.com is a provider of discount hotel rooms and other lodging
accommodations, allowing customers to select and book hotel rooms
in major cities through the company's websites and its toll-free
call centers. ROOM contracts with hotels in advance for volume
purchases and guaranteed availability of hotel rooms and vacation
rentals at wholesale prices and sells these rooms to consumers,
often at discounts to published rates. In addition, its hotel
supply relationships often allow the company to offer its
customers hotel accommodation alternatives for otherwise
unavailable dates. At the end of 2001, ROOM had room supply
agreements with over 4500 lodging properties in 178 major markets
in North America, the Caribbean, Western Europe and Asia.
Why we like it:
As expected, shares of ROOM have not responded well to the ongoing
war, with the additional pressure being provided by the ongoing
SARS virus. Whether perceived or real, investors are operating
under the assumption that travel is going to be curtailed
(especially to the Middle East and Asia) and are deciding that the
best course of action is to be out of stocks that are tied to this
part of the economy. Last week was one continuous deterioration
for the stock, as it broke first below the 10-dema (now at
$57.25), then the $56 support level (which served as intraday
resistance on Thursday) and is now testing the $54 support level.
Reinforcing this support level is the 20-dma ($54.04) and we
expect that a break below this level will make for both a solid
momentum entry and the beginning of a swift decline towards our
eventual downside target of $50. Since that level is also the
site of the 200-dma, we want to use a drop to that level as our
cue to exit the play for a very nice gain. Thursday's early print
at $56.80 looks like bad data, but even if it isn't it shows that
there is no interest in pushing the stock higher at this point.
Another rollover near the $56 level looks like a solid entry into
the play, with a remote possibility for a slightly better entry on
a bounce failure near $57. Once ROOM breaks below $54 on a
closing basis, we'll look to lower our stop, but for now it
remains at $58.
Suggested Options:
Short-term traders will want to focus on the April 55 Put, as it
will provide the best return for a short-term play. Those looking
for additional staying power to hold through the recent (and
expected future) volatility will want to use the May 55 strike.
Aggressive traders can use the May 50 Put, with the understanding
that ROOM will need to reach the our $50 target for that choice to
really pay off.
BUY PUT APR-55 URD-PK OI=2957 at $3.10 SL=1.50
BUY PUT MAY-55 URD-QK OI= 224 at $5.30 SL=3.25
BUY PUT MAY-50 URD-QJ OI= 101 at $3.30 SL=1.75
Annotated Chart of ROOM:
Picked on March 30th at $58.58
Change since picked: -4.23
Earnings Date 04/24/03 (unconfirmed)
Average Daily Volume = 1.39 mln
---
Whirlpool - WHR - close: 50.88 change: -0.42 stop: 52.76
Company Description:
Whirlpool Corporation is the world's leading manufacturer and
marketer of major home appliances. Headquartered in Benton
Harbor, Michigan, the company manufactures in 13 countries and
markets products under 11 major brand names in more than 170
countries. (source: company press release)
Why we like it:
WHR caught fire with the broader markets Wednesday, running all
the way up to the 200-dma, where we recommended entries on a
rollover from heavy resistance. That 200-dma coincided with
horizontal resistance in the $52-$52.50 range and the rollover
has so far looked great for those entries. Although it has yet to
break back through the 50-dma we cited when we first picked the
stock last weekend, that line has already proven to be less
significant than it had been on previous attempts, due to the
breakdown. Business does not appear to be improving for the
company, as it announced a furlough of 315 workers at a
dishwasher plant on Wednesday due to high inventory levels. This
would seem to confirm the recent disappointment in durable goods
orders. Aggressive new entries can continue to pile on at current
levels, while more conservative traders may want to wait for a
break back below $50.
BUY PUT APR-50 WHR-PJ OI=89 at $1.25 SL=0.60
BUY PUT JUN-50 WHR-RJ OI=89 at $3.10 SL=1.55
Picked on March 29 at $49.58
Change since picked: +1.30
Earnings Date 04/16/03 (unconfirmed)
Average Daily Volume = 687 k
------------------------------------------------------------
WINNER of Forbes Best of the Web Award
optionsXpress voted Favorite Options Site by Forbes
Easy screens for spreads, collars, or covered calls
Free streaming quotes
Real-time option chains, charts + calculators
Go to http://www.optionsxpress.com/marketing.asp?source=oetics21
Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------
*****
LEAPS
*****
Frustration
By Mark Phillips
mphillips@OptionInvestor.com
That's what I'm feeling this weekend, after having the majority of
the plays in the LEAPS Portfolio stopped out on Monday's plunge,
in some cases just barely. Then by mid-week, another asset
allocation program drove most of those plays sharply higher.
What's a bull to do?
There are some lessons that can't be learned in a single sitting,
and this is one of them. Don't deviate from your plan of action -
- no matter what. That is the error that I made with the LEAPS
Portfolio. My plan of action was initially to follow those plays
upward with trailed stops, but the euphoric rally that ended on
March 21st threw me a curve that I didn't handle very well. I
knew that there would be a retracement of some of those gains, but
trying to pick a floor after a nearly vertical 8-day rise turned
out to be more problematical than I thought. Rather than raising
stops to near break even, they should have either been VERY tight,
or left well below know strong support. I actually ended up
picking stops in the middle of those two areas with a very
predictable (in hindsight) result -- most of them got clipped.
So what's the lesson? More than anything, it is a reminder that
we are still very much in a bear market. But we are in the
established phase of the bear market and that means heightened
volatility. That means whenever there is a substantial gain on
the table, we should take it, no questions asked. I've made that
mistake before, and I made it again over the past 2 weeks.
Hopefully this will be the last time I have to "learn" it. If any
of you see me erring on the side of trying to get greedy in this
column in the future, I certainly wouldn't mind a gentle reminder!
All right, let's talk about the broad market for a few minutes.
Simply put, I think it is two steps shy of being termed clinically
insane. We all know that the primary (only) driver in the market
is the war. How else can you explain the amazing resilience of
the market late last week as it continued to move up on what can
only be called dismal economic news? April is the last month of
the "good 6 months" for the market, and then we head into the "bad
6 months". Based on the epidemic of earnings warnings and
downgrades (particularly in the Tech sector), I don't know how you
can be feeling bullish about the upcoming earnings cycle in that
environment. Throw in the dismal employment numbers (I think I
heard that the last 2 months was the worst 2 month period since
1982), the worsening SARS epidemic in Asia (and fears it might
spread), the unknown cost of the war and the subsequent
reconstruction, and it is not a pretty picture. But still, there
are eager buyers in the market. Why?
Aahh, now we get to the interesting part of the discussion.
Technicals. That's it. Ok, maybe it isn't that simple, but I
think it sums up what is going on. We've seen sharp equity
rallies in the past few weeks, partially due to technicals in the
equity markets themselves, but also largely driven by reaching
important technical levels in the bond markets. All the while, we
have the OEX and the VIX moving along in broad consolidation
patterns that are due to break no later than the end of May. I've
shared my belief that the VIX will break out to the upside, while
the market breaks out to the downside. That would certainly seem
to fit with the underlying fundamentals. But what if the dismal
fundamentals are already factored into the market? What then?
Linda Piazza recently reminded us that we can't ignore the
possibility of the third option, which is that the OEX and VIX
just drift out through the apex of those triangle patterns without
making a decisive break in either direction. Obviously, we don't
like that option, as it doesn't really provide trading
opportunities. But it is a possibility we need to consider in
planning our trading activity.
I posted a comment venting my frustration at the market last week,
which started out with "I HATE this market..." That elicited
several responses from readers, some in agreement and some not.
But there was one email that I found particularly interesting
because of the underlying assumption.
I want to tell you how much I appreciate your direct and clear way
of communicating your thoughts. Yesterday I saw you posting that "
I don't want to mince any words here, I HATe this market..." . I
am sure you helped many traders to preserve their capital. But
Mark, don't you think that after this entire ordeal is over, and
Iraq falls, we will see a good sized rally? I think we need to
wait for that opportunity to either participate in the rally or
short it after it exhausts itself. If you have any thoughts please
pass it on.
While I don't have a specific answer about whether there is a
"good sized" rally just around the corner, I think this question
succinctly sums up what is going on in the broad market.
Investors expect we'll have a strong rally after the war is over.
The problem is that I think most of that rally has already
occurred. We'll certainly get an answer to that question soon
enough. But whether we get another leg up in this rally or not, I
expect the next batch of solid trades to be to the downside. I'm
just not going to dip my toe into that pond until I see the
bullish percents showing me a more extended market. As you can
see from my reader's last sentence in that email, he's doing the
same thing -- waiting for the evidence to show him which way to
play and when. I think that's prudent advice for all of us.
Well, that's enough of that. Let's go look at the few remaining
plays and see what we can learn.
Portfolio:
ADBE - Falling with the rest of the market early last week, ADBE
successfully held above our $30 stop, although it looked
questionable on both Monday and Tuesday. But the buyers won out
later in the week, pushing the stock back over the $32 level.
After being successfully defended for the past 3 weeks, I now
expect the $30 level to hold as support, and I'm maintaining our
stop there. One metric we can use to see if the stock is
weakening though is the 20-dma ($31.03) which provided some
support last week. A violation of that level would not be a good
sign. ADBE needs to get back over the $34 level on a closing
basis to provide the confirmation that it still has some upside
potential. With very strong resistance starting at $36 and
continuing through the $40 level, I would recommend that
conservative traders look to harvest gains in that area.
EMC - Once again, EMC held up remarkably well last week in the
face of a rather weak and volatile market. Following the briefest
of dips below the $7 level on Monday morning, the stock proceeded
to work itself higher throughout the remainder of the week. While
currently stalled just below the $8 level, note that EMC is now
above its long-term (32-month) descending trendline, and it has
been above that trendline for the past 3 days. There's still some
significant resistance to work through in the $8.00-8.50 area, but
then it looks like EMC will be well on its way to the $9.50 level
and then major resistance near $11-12. Until EMC breaks above
$8.50, we're going to maintain a very conservative stop at $5.50.
Watch List:
NEM - After announcing very strong earnings just over a week ago,
NEM has given back the majority of its sharp gains on the heels of
that report. A big part of the reason behind that drop has been
the fact that the price of gold has continued to languish as the
war in Iraq goes quite well. We've discussed the fallacy of the
connection between the price of gold and the war effort, so I
won't belabor the point again today. Suffice to say that we want
to take advantage of any post war weakness to enter a bullish
position into the Blue Chip stock of the mining industry. The
stock's pre-earnings lows were just above $24 and that lines up
nicely with the two ascending trendlines that line up in the
$23.50-24.00, making a clear case for the entry point we're
looking for. Patience is the key, along with remembering that
this play is a hedge against expected currency weakness, which
began long before the idea of an Iraq war ever surfaced and will
continue long after.
QQQ - I've often stated that I never trade gaps and I extend that
discipline to entering plays in the LEAPS Portfolio. That
discipline was tested again last Wednesday as the QQQ gapped above
the $26 level and after pushing to as high as $26.85 by Thursday
afternoon, gave it all back by Friday's close. At a minimum, I
expect that gap to be filled and if we can get some more
constructive price action near the $25.00-25.50 level next time
then we'll consider taking an entry. We certainly aren't going to
chase an entry on this play, especially with the weekly
Stochastics tipping over from overbought territory already. This
play is primarily based on my expectations for the NASDAQ to
outperform the rest of the market this year, but the rash of
warnings in the Tech sector last week is not a good sign. For
that reason, we're only going to consider very passive entries
into the play.
GD - While Defense stocks staged an impressive rebound from their
lows last month, a quick look at the DFI index shows a potential
double top near the $465 level, and it seems likely that the group
will continue to be weak as long as the war in Iraq continues to
proceed reasonably smoothly. It is that weakness that we expect
to take advantage of in our GD play, as the stock likely tests its
recent lows near $50. GD broke back under the $55 level on Friday
and appears to be headed for that retest in the near term. There
is no question that this is a higher-risk play as we are
attempting to pick a bottom in a stock (and sector) that has been
very weak lately. But it also looks lie a play that has very
manageable risk, with large upside potential once the war-related
pessimism (related to this sector of the market) passes.
"Despite the uncertainties in the global arena, the still dismal
economic picture and the distinct possibility for earnings
disappointments in the weeks ahead, my bias it still to the
upside. The dominant factors in that thesis are the still
climbing bullish percent readings, the sharp reduction in the
Commercial short positions, increasing Buying pressure according
to Lowry's and the recent series of 90% down days. Over the
intermediate term, I believe this market wants to go up, whether
that inclination is supported by the fundamentals or not. For
that reason, I will continue to keep our play list tilted to the
bullish side."
Sound familiar? That was copied from last week's article and I
see no reason to deviate from the current view. As long as
traders are focused on the potential for a post-war rally (which I
think will be short-lived at best), there is little merit in
attempting to initiate longer-term bearish positions. At the same
time, I looked at over 200 charts of LEAP-able stocks this weekend
and didn't see anything that looked like a strong bullish play. I
see most stocks having butted up against significant resistance or
slightly broken above it, while weekly Stochastics have moved into
overbought and are starting to weaken. In other words, now
doesn't seem to be the time to be initiating new bullish positions
either. We're stuck in the middle, very much like the OEX and VIX
are stuck in the middle of their consolidation patterns. The best
time to be looking at new positions will be at the extremes of
that consolidation, and that's not where we are. Rather than pick
the best of a mediocre list of plays, I've opted to lay off new
plays for another week. But I promise something new and exciting
next weekend.
In the meantime, manage your open positions aggressively!
Mark
LEAPS Portfolio
Current Open Plays
SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP
Calls:
None
ADBE 02/28/03 '04 $ 30 LAE-AF $ 4.70 $ 7.30 +46.81% $30
'05 $ 30 ZAE-AF $ 7.50 $10.30 +34.67% $30
EMC 03/12/03 '04 $ 7 LUE-AU $ 1.40 $ 1.80 +28.57% $5.50
'05 $ 7 ZUE-AU $ 2.15 $ 2.85 +32.56% $5.50
Puts:
None
LEAPS Watchlist
Current Possibles
SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL
CALLS:
NEM 03/09/03 $24.00-24.50 JAN-2004 $ 25 LIE-AE
CC JAN-2004 $ 20 LIE-AD
JAN-2005 $ 25 ZIE-AE
CC JAN-2005 $ 20 ZIE-AD
QQQ 03/16/03 $25.00-25.50 JAN-2004 $ 26 KLF-AZ
CC JAN-2004 $ 22 LKF-AU
JAN-2005 $ 26 ZWQ-AZ
CC JAN-2005 $ 22 ZWQ-AU
GD 03/23/03 $50-52 JAN-2004 $ 60 KJD-AL
CC JAN-2004 $ 50 KJD-AJ
JAN-2005 $ 60 ZZJ-AL
CC JAN-2005 $ 50 ZZJ-AJ
PUTS:
None
New Portfolio Plays
None
New Watchlist Plays
None
Drops
AA - $19.38 This play is a perfect example of something that
should never happen. We picked the perfect entry into the play,
rode it up to a gain of 160% as of March 21st and then watched as
the market took it all back. We got stopped out last Monday when
AA dropped below the $19.75 level, leaving us with the question of
"What did we do wrong?" The simple answer is we didn't take the
gain when it was offered. The correct course of action would have
been to exit the play first thing on Monday, March 24th. That
large a gain should never be allowed to disappear and the blame is
all mine. Let this serve as a reminder to everyone that just
because we are experienced traders, that doesn't mean we can't
make a rookie mistake from time to time. But hopefully the
frequency decreases over time. AA announced strong earnings on
Friday after the closing bell and based on the after-hours
trading, the stock should open on Monday near the $21 level For
those of you that are still holding open positions, I would
recommend exiting those positions on that strength. It seems
clear now that the initial push up to $22 was largely driven by
short-covering and I don't expect that to be repeated in the weeks
ahead.
BEAS - $10.14 Clearly our BEAS play was not managed the best it
could have been. The entry at the $10 level looked solid and we
did see the stock run up to test the $12 level. Far enough to
have the play in the black, but not enough to justify my
tightening of the stop to just above entry. That stop should have
been maintained no higher than the 200-dma, which is where we
initially defined our risk in the play. Looking at the price
action in the stock following our exit last week though and I am
less certain of its bullish potential. There has been an
unsettlingly high number of warnings and downgrades in the
Software sector over the past couple weeks, and that sector
weakness does not bode well for the stock. I didn't like the
sharp drop in the stock on Friday, and a look at the weekly chart
shows BEAS giving a short-cycle bearish reversal in Stochastics.
If still holding open positions, I would recommend exiting on any
strength in the $11-12 area next week ahead of any more bombs in
the Software sector.
DJX - $79.92 Combine a poor entry with ineffectual management of
stops and we're left with a marginally losing play. The entry I
logged into this play near the $79 level back in February turned
out to be far too early, and after just holding our $74.50 stop
before the big rebound in the middle of March, had me erring in
the adjustment of the stop. After the strong runup on March 21st,
the stop should have either been tightened to the point where it
would guarantee a gain or left at a level that would ride out any
future volatility. Unfortunately, I placed the stop right in the
middle, just high enough to get clipped on last Monday's plunge,
but not high enough to get us out with a gain. The appropriate
stop would have been either $82.50, or down near the $78 level.
Moving it to $81 as I did just allowed us to be taken out before
the next rebound. Note how the 50-dma provided support for that
rebound. For those of you that remained in the play, I would
advocate two potential courses of action. Either raise stops to
$82 (just below last Friday's intraday low) or else keep them very
conservative at $79, just below last Monday's intraday low. Note
that weekly Stochastics are just starting to tip over, so I would
recommend taking profits on a return to the $85 level
MSFT - $24.21 Our stop was clipped by the merest of margins on
Monday's broad market plunge, and then MSFT rebounded smartly.
While the stock didn't hold its mid-week gains, it did find
support at the 20-dma on Friday. My expectation that the
combination of support at the $24.50 level as well as the 50-dma
would hold on any price drop proved to be overly optimistic.
Hindsight shows that our stop should have been maintained either
at $24 or the long-term ascending trendline (now at $23.65. For
those of you that are still holding positions, I would recommend
stops at the $23.50 level to ride through the current volatility,
in anticipation of an eventual move through the $27 resistance
enroute to a test of stronger resistance in the $28-29 area.
QCOM - $34.18 This is the only play this week that in my opinion
was handled correctly. Barring any significant change of outlook
for the company, the bottom of the gap near $35.20 should have
provided support. Unfortunately for us, things did change, with
Merrill Lynch making comments Wednesday morning that the company
will likely face long-term challenges from the Samsung chip
initiative, which likely presents a threat to QCOM's dominance in
the CDMA chip arena. Whether that turns out to be true or not,
the resultant price action torpedoed our play, plunging price
through perceived support at $35 and stopping us out of the play.
I continue to think this was a good play that just didn't pan out.
While the technicals looked favorable at entry, I wouldn't be a
fan of holding open positions at this point. There was some
significant damage done last week with the sharp deterioration in
On Balance Volume, and weekly Stochastics are now tipping bearish.
My advice is to take the loss and move on.
**************
TRADERS CORNER
**************
Profits Get High With A Little Help From My Friends
By Mike Parnos, Investing With Attitude
Did you ever wonder how option strategies get their names? Early
on, many were named after birds, animals and insects. Pretty
unimaginative stuff. Then we took a giant step forward. We
began to give them names with human qualities – ones we can
better identify with -- like "straddles" and "strangles."
They paint vivid pictures and are definitely more memorable.
Options, as we've learned, are living and breathing creatures –
each with a specific life span and with unpredictable mood
swings. Since we've gone boldly into the 21st century, we, at
the Couch Potato Trading Institute, should carry the torch and
take the initiative to create names that more accurately describe
the interactions between options being held together in the
privacy of a personal brokerage account.
Today's option strategy may take on a life of its own with, of
course, a little help from its friends.
_____________________________________________________________
Setting The Stage
Friday, the DOW closed at 8277. Let's round it off to an even
8,300. Why? Because it makes life easier – and that's what the
Couch Potato Trading Institute (CPTI) is all about.
It looks like 8,300 may be an important level for the DOW. It's
a support level that will get tested. If violated, it's becomes
a resistance level. With just a few weeks left until April
expiration, there's a good chance the DOW will spend some time
bouncing around 8,300 level. How can we take advantage of that
prognosis?
How can we take in some money, give ourselves some room for
error, limit our risk and make a few bucks at the same time?
A Name For All Ages
One of our favorite strategies is the Iron Condor. True, the
Iron Condor does all the things we mentioned. It's a great
strategy for many reasons. However, today we're going to learn
another strategy I've named the "minage-a-qua." It's a minage-a-
tua with a friend.
The "minage-a-qua" consists of four options working together in
the spirit of cooperation with one common goal. A put and a call
joined at a particular level being protected by another put and a
call. The risk is small and the rewards are high.
Ahhh! The things we do for love – and money – and the love of
money!
_____________________________________________________________
The "Minage-a-Qua" Strategy
We're going to use the DJX options because they mirror the DOW –
at 10% of its value. When the DOW is 8,300, the ATM DJX option
is $83. Here's what were going to do.
Sell 10 contracts of the DJX 83 calls @ $1.55
Sell 10 contracts of the DJX 83 puts @ $1.85
CPTI students will recognize the first part of this trade as a
sell straddle. Thus far, we have taken in $3.40, but we're
naked. We need to go to the option drugstore and buy some
protection. They're having a sale on the extra-strength DJX 80
and 86 longs.
Now we will:
Buy 10 contracts of the DJX 86 calls @ $.60
Buy 10 contracts of the DJX 80 puts @ $.80
The cost of our protection is $1.40
Basically, what we have is a bull put spread and a bear call
spread with the short puts and calls at the same strike (83).
It's like an Iron Condor with the two spreads up close and
personal.
How We Make Money
We've taken in $3.40 and our protection cost us $1.40.
Therefore, we have $2.00 in our pocket. The closer the DOW
finishes to the 8,300 level, the more of the $2.00 we'll be able
to keep.
Our Exposure
As in an Iron Condor, we're exposed for the difference between
the strike prices. In this case, we're short the DJX 83 calls
and long the 86 calls. That's three points. Our exposure is the
difference between the strike prices (80-83 or 83-86). We
already have the $2.00. So, our actual exposure is only $1.00
($3.00 - $2.00). That's not a bad risk/reward. Our profit
(safety) range is 8100 – 8500. That's a 400 point range.
Cash Settlement
One of the benefits of trading the DJX is that it has a European
settlement and it expires the Thursday before the Friday of
option expiration. That's a CASH settlement. That means you
don't have to do anything. Your brokerage account will reflect
the cash settlement. Because it's an index, and not traded as a
stock, there is no concern of DJX options being exercised. On
the other hand, the QQQs and DIAs are also indexes, but are
traded as stocks. With the QQQs and DIAs, exercise and/or
assignment are possibilities (though remote). Double check with
your broker
What If . . .
The DOW finishes at 8,400? The short 83 call will have a value
$1.00. The profit will be $1.00.
The DOW finishes at 8,225? The short 83 put will have a value of
$.75. The profit will be $1.15.
The DOW finishes at 8,650? The short 83 call will have a value
of $2.50. The loss will be $.50.
For Those More Aggressive
There is a way to increase your profit range, but it comes at a
price (doesn't everything?). Instead of buying the DJX 86 calls
and 80 puts for your protection, you can purchase the DJX 87
calls and 79 puts. The cost would be only $1.10 compared to the
$1.40 we paid for the 86s and 80s. Our final credit would be
$2.30. That would make our DOW profit (safety) range from 8070
to 8530. The price we're paying for the additional premium is
the extra dollar of exposure. Instead of being exposed for only
three points, we are now exposed for four points. Our
risk/reward is $1.60 to $2.40
_____________________________________________________________
CPTI Portfolio Update
Position #1 – OEX Iron Condor – closed Thursday at $446.69.
We created an Iron Condor with a 70-point range of 420 to 490 for
April. The objective is for the OEX, at April expiration, to
finish anywhere within the spread.
The total credit for the Iron Condor position is $2.35. Our
profit target is $2,350 for 10 contracts. Our safety range is
417.65 to 492.35. Looking real good!
Position #2 – BRCM Short Straddle – Trading at $13.13.
About three points ago we sold 10 contracts of BRCM April $15
calls and sold 10 contracts of BRCM April $15 puts for a total
credit of $2.60. Our safety range is from $12.40 to $17.60.
Some CPTI students were getting nervous. They chose to buy the
April $12.50 put for about $.75. That protected them from $12.50
down to zero. It means that BRCM has to finish above $13.15 to
make a profit. Their maximum potential loss is the $.75 cost of
the $12.50 put. Or, as of Friday's close, you can just buy back
the $15 put for $2.15 and lock in $450 profit on the put side.
Barring something really weird, the $15 call will likely expire
worthless.
Position #3 – MMM Iron Condor – $133.98.
We created an Iron Condor with a 15-point range $115 to $130 for
April. We were able to take in $1,550 for our 10-contract
position. The objective is for the underlying, at expiration, to
finish anywhere within the spread.
The market has gone up much too far and much to fast. We have
two weeks for calmer heads to hopefully prevail and return MMM,
among many other stocks, to a more reasonable level (below $130).
We'll see if Fibonacci was right. We're still betting on it.
Ongoing Position #1 -- QQQ ITM Strangle – $26.05.
This is a long-term position we created four months ago. We own
the January 2005 $21 LEAPS calls and the January 2005 $29 LEAPS
puts. We sold 10 contracts of the QQQ April $28 the QQQ April
$22. We moved our short sells in by one point to generate some
extra premium. Our new cost basis for the position is $5.30.
Some readers are questioning the potential profitability of this
strategy. Well, it seemed like a good idea at the time. But,
then the volatility and premiums were higher. Since a lot of
money is being tied up with this strategy, let's dump it and find
a better use for that money. It will take $.10 to buy back the
short puts and calls and we can sell the long puts and calls for
$5.80. Since our cost is $5.30, we're still ending up with a
$400 profit. For a four-month investment, it's hardly worth it.
But we'll take it!
Ongoing Position #2 – OIH - Diagonal Calendar Spread – $54.58.
We felt there was a great deal of uncertainty built into the
price of a barrel of oil. When, and if, the war is resolved, the
price of oil should work its way down, along with the price of
oil stocks.
We bought 10 contracts of the July OIH $55 puts and sold 10
contracts of the March OIH $50 put at a debit of $3.85.
According to plan, the March $50 put expired worthless. We then
sold the April $50 put for $.70 to bring our cost basis down to
$3.15.
On Monday, if we closed the position, we would be able to bring
in about $3.95. With a $3.15 cost basis, we could realize an
$800 profit.
Happy trading! Remember the CPTI credo: May our remote batteries
and self-discipline last forever, but mierde happens. Be
prepared! In trading, as in life, it’s not the cards we’re dealt.
It’s how we play them.
Your questions and comments are always welcome.
Mike Parnos
CPTI Instructor
**************
TRADERS CORNER
**************
An Alternate Route
By Steve Gould
The other day my wife and I were driving through town. As we
approached this one intersection, traffic started to slow until it
finally came to a dead stop. I could see up ahead that there was
an accident with several emergency vehicles assisting. Because we
were stopped, I opened up my map. My wife asked me what I was
doing. I told her I was looking for an alternate route. To my
amazement, she insisted that we wait it out like everyone else.
Well, I am not like everyone else. I am always looking for
different ways of doing things. I calculated that if I turned
into the McDonalds, drove through the parking lot and a right onto
the cross street, take it down a half mile, I could intersect a
parallel road and circumvent the traffic. Instead of sitting in
traffic, we were on our way with only a 10 minute, out of our way
detour. From what I could see, I was the only one doing this.
Watching the news later, I discovered that the rest of the crowd
was there for another hour.
If you want to be a successful trader, you need to start doing
things that no one else is doing. Of course, one of the reasons
why no one else is doing it may be because it doesn't work. The
other reason may very well be that only a few people know about
it.
When I attend seminars, I will show other people my little trick.
I am finding that no one is doing this, let alone knows about it.
I will say that there are times when it doesn't aid in my
decision. But it is another tool in my arsenal of indicators that
helps me make a trading decision.
The little trick I want to discuss is Fibonacci ratios. I know
this technique is becoming quite popular and many people already
know about it. But I want to put a slightly different twist to
it.
Instead of giving a detailed explanation of Fibonacci ratios, I
will review it briefly for those not completely up to speed and
then put my little twist to it. Many people have written
extensively on Fibonacci numbers and the patterns they generate. I
do not wish to replicate that here. If I get enough requests
though, I may consider it for a future article.
Fibonacci was a 16th century Italian mathematician who is most
remembered for his Fibonacci sequence. (Hmm. Imagine that.
Fibonacci discovered the Fibonacci sequence. What a coincidence.
What are the odds of that happening?) The sequence is a
mathematical series starting with 0, 1. The last two digits are
added together to obtain the next digit. This continues on to
infinity. If we continue with the sequence, we would get
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, etc.
These are good numbers to know as they can be used in indicators
like moving averages. Try using a 55 and 233 day moving average
instead of the "industry standard" 50 and 200 day moving averages.
See if support and resistance lines don't match up better.
Without going into great detail as to how or why it works,
Fibonacci ratio theory states that given a movement in the price
of a stock, the stock will retrace 38%, 50% or 62% before it
continues in its trend. (For those of you not familiar with
mathematical terms, this is called profit taking.) After a run up
(or down in the case of a bear), the most likely retracement
levels are 38%, 50% and 62%. That doesn’t mean that 45% couldn’t
happen, but it is far less common.
Let's look at some real examples. Take a look at these charts of
the Dow.
Chart: Wave 1 Retracement
Notice how the 2 wave retraced 62% of the 1 wave. This
retracement was almost to the exact number. The black arrow
represents the length, in price, of the 1 wave (10680 – 9801 =
879). The red arrow represents the 62% retracement in price
(10344 – 9801 = 543, 879 x 62% = 545). Studies show that the wave
2 retracement will be between the 50 – 62% retracement more than
85% of the time.
Here is a similar situation for a wave 4.
Chart: Wave 3 Retracement
We can do the same type of analysis for B waves. In fact, look at
the B wave (not labeled, but it is the first retracement) in the 4
wave. Although no measurements were marked, the B wave retraced
about 60%
Many charting programs on the market have a Fibonacci retracement
function so it should be easy to perform this type of analysis.
Fibonacci ratios have been written about quite extensively of
late. Lots of people know about it. However, what few people
know is that there is another dimension for using Fibonacci
ratios.
Not only can Fibonacci ratios be used for retracements, Fibonacci
ratios can be used for extensions as well. We can take the
retracement ratios, 38%, 50% and 62% and add 100% to them to get
extensions. This gives us 138%, 150% and 162%. If we add 200%,
we get 238%, 250% and 262%. That is pretty much how far out we
want to go.
Most authors who use Fibonacci numbers use them on just one axis
on the graph, the price axis. However, there is another axis, the
time axis. Fibonacci numbers work in that axis, too.
So let's take the same extensions and look at them in terms of
time.
Chart: Wave 3 time extension
On this graph, I marked off the ends of wave 3. The program
calculated the 138%, 150% and 162% time extensions. This means
that those lines represent 38 – 62% of the 3 wave. Sort of like a
retracement level.
Notice how these extensions fit right in with the peak of the 4
wave. I have found, not always, but a lot, that the 4 wave will
peak between the 138%, 150% and 162% extensions. In other words,
the 4 wave is 38 – 62% the length of the 3 wave in time units.
This helps determine a time frame as to when the wave 4 is
complete and it is time to place the trade.
But wait, if you order now, you can combine the price retracements
with the time extensions to get the following chart at no extra
cost.
Chart: Trading Zone
This chart is very illustrative. The point where I have marked
"Potential Trade" is the bar where we are starting to think that
this is the end of the 4 wave. It meets the criteria. The
oscillator has retraced 90%, the 4 wave has retraced at least 38%
and it has tracked out a very nice A-B-C corrective pattern. This
would be a reasonable spot to place a trade.
But if we also consider the time extensions and the price
retracements together, we can see that it might be best to wait.
In real time, this is what we would be looking at.
Chart: Trading Zone Real Time
Although the Dow could certainly head south on the next bar, this
chart is saying it is better to wait until the Dow makes it into
the trading zone box. The next chart shows what the Dow looks
like after several more days.
Chart: Initiate Trade
This looks like a much better spot to initiate the trade. Factors
that I am looking at are
1. The A-B-C correction looks complete
2. The oscillator is starting to turn
3. I can see a 5 wave basic pattern inside the C wave
4. The Dow is smack dab in the middle of the trading zone
Finally, lest you think you found the Holy Grail, let me finish
with one last example where time extensions did not yield any
useful information. Take a look at this chart.
Chart: Inaccurate extensions
On this chart, the Fibonacci extensions were way early. As with
any indicator, we must be careful to use them as guidelines.
Several indicators must line up in order to trigger a trade.
As you can see from the chart, the price pattern between the 138 –
162% extensions do not fit the other criteria for placing a Type I
trade. In particular, the stock did not yet retrace at least 38%,
the oscillator did not yet retrace at least 90% and there is no
clear A-B-C correction. The fact that the time extensions were
not corroborative does not distract from the usefulness of this
tool.
Two tools that I find very useful in uncovering high percentage
trades are Elliott Wave analysis and Fibonacci ratios. Fibonacci
ratios are not limited to just the price axis. They can be very
useful on the time axis as well and the skilled trader will use
them to help make the decision to place a trade.
**************
FUTURES CORNER
**************
Money For Nothing - An Introduction to Backtesting
I though I would write down a few thoughts on a topic which piques
the curiosity of many traders. I will also run some basic
backtests against the ES to give an example of what kind of
results one can expect.
If you have been involved with technical trading for any length of
time, you have no doubt heard about the concept of Program
Trading. The idea is simple, but the execution can be anywhere
from puzzling, to mind-numbing in complexity. Program Trading can
be summed up thusly: Software does the trading for you. This is
software that you write yourself, hire somebody to write for you,
or that you buy from an individual or corporation. The basis, or
the triggers used to enter and exit trades can be as simple as
price moving above or below a moving average, which can take no
more than 50-100 lines of code, to incredibly complex systems that
are written by mathematicians using artificial intelligence
systems which require tens of thousands of lines of programming.
The latter of the two are systems that cost millions of dollars to
code, and require a fairly large staff of systems engineers to
maintain. It is difficult to get much information from trading
houses, hedge funds, and others who use such systems, and while
they will say very little about how much of their trading and
profits (or losses) are due to program trading, we can only assume
that they generate enough profits to be worth the expense of
maintaining and improving these large systems.
While thinking about this article, I came up with several titles
such as, "Basics of Backtesting" and "What is Program Trading?",
but the idea that burns in the hearts of all traders is really
this: Money for Nothing, or, coming up with a simple system of
trading that you can program and set loose to generate profits for
nothing more than the cost of commissions. After the initial
investment of setting this into motion, all you have to do is sit
in your hot tub and wait for the profits to roll in. It is the
traders Holy Grail.
Backtesting
Last year I got the program trading glint in my eye when I signed
up with Esignal and found that their new version allowed
programming of simple to complex systems in order to backtest them
for efficiency. What is backtesting? It is simply this: you
program an idea, for example the idea of going long when price
closes above the 50ema, and then you test it using data from the
past. Reports are generated giving you a variety of statistics,
and the ever important net amount from the trades.
The first thing that I did was backtest the concept of CCI
crossing the centerline for long and short trades. The results
that I got from those tests were AMAZING! I was going to be RICH!
I started daydreaming about long vacations to the south of Spain,
and a new motorcycle, and, and.....and I found a slight
programming error in my code. I ran the tests again and received
results that were just plain pitiful. Dang.
Looks like my next trip to Spain was going to be like my last one:
strap on a backpack and go to cheap 2-star hotels. Oh well. You
still meet more interesting people in places like that. But darn
it all, I really wanted that new Italian Moto Guzzi motorcycle
I've been drooling over, so I persevered. Over the past year I've
learned quite a bit about backtesting, and have had some strong
preconceptions shattered. For example, I always thought that a
trailing stop would give much better results than just a SAR (Stop
and Reverse) system, but months of testing showed me that my
expectations were wrong. Even though I used a hundred different
variations on the trailing stop, it never gave better numbers than
a simple SAR. It surprised me greatly, but the numbers didn't
lie.
Let's say you have a simple idea: go long when Macd(12,26,8) fast
line crosses over the slow line to the upside, and to go short
when it crosses to the downside.
1. You code a simple program and run it against a daily chart, a
120 minute chart, 60 minute chart and so on all the way to a 5
minute chart. Then you make a small table of the results
containing information such as number of trades, percent of
positive vs. negative trades, net totals, and so on.
2. You then change the signal smoothing from 8 to 6, and using
Macd(12,26,6) you rerun the tests. If the results are worse, you
turn around and try increasing the signal smoothing, and rerun the
tests using Macd(12,26,10). If the results improve, you continue
adding to the signal smoothing until the results stop improving.
Slowly you modify this number, and perhaps the slow and fast
length of Macd, until you get a setting and a time frame that give
you the best results.
Even though this sounds incredibly tedious, and sometimes it can
be, it is more often than not an interesting puzzle. You have a
finite amount of numbers to use, and you just need to find the
right combination of these numbers to maximize your return. You
also have the concept of Money For Nothing propelling you along.
These tests can take anywhere from 10 seconds to perform on a
daily chart, to several minutes when running the same test on a 5
minute chart. This is because a daily chart may generate 60
trades for the test while a 5 minute chart may generate 1200
trades for the same period.
I keep a sketch book and doodle while I run the tests. I also
keep some weights in my trading room and do some lifting, sit-ups
and so on between tests. After trading all day, the last thing I
want to do is sit immobile all night running backtests.
When the first set of tests are done, you may find that something
like Macd(11, 17, 6) gives the best results for trading IBM on a
15 minute chart. Excellent. You may now decide to sit in front
of the monitor all day, every day, and trade IBM by using this as
one of your key indicators. Then you notice something
interesting: the crossing of the Macd lines over the centerline
is also a good signal for entering a trade.
3. You modify your code a bit so that it takes 100 shares of IBM
long when the Macd lines cross to the upside, and then adds 100
shares long when those lines cross the centerline. Run a test
and see what kind of results you get.
4. More ideas: How about testing just the crossing of the
centerline? Are the results better? What about moving the stop
to breakeven once price moves in your direction by some set
amount.
These types of tests are limited only by your imagination. "But
wait", you say, "it is also limited by my inability to program.
I'm no code jockey, please don't make me go back to school!"
Indeed, this can be a bit of an overwhelming issue, but Esignal,
Tradestation, and other trading software that allows program
trading and backtesting, often have hundreds of programs already
written, templates which contain most of the code, and even
automated software which ask you a series of questions and then
create the code for you.
Backtesting is a slippery fish. It continues to surprise me with
results that are completely unexpected. I may get terrific
results testing an idea on IBM, but horrible results when testing
it on MSFT. Whatever idea you have, it will work much better with
certain types of stocks than it will with others. My focus has
been to try and develop a trading system to trade the ES, but for
months I was frustrated by constantly better results when running
tests against KLAC, one of my testing stocks.
Here are some things I noticed in testing:
1. Never assume something. These tests are meant to break you of
you assumptions. When testing, don't skip steps, the one setting
you didn't try could be the one that gave the best results.
2. Run your tests on a number of stocks, and mix them up so that
you have some highly volatile stocks and some low volatility
stocks. You specific idea work horribly on a high volatility
issue like ES, but work extremely well on a stodgy old boat like
MO.
3. Consider programming your ideas so that you close out all
positions at the end of the day. I found that most large losses
occurred due to gaps, sometimes as much as 40% of total losses for
the entire test.
4. Keep in mind that you are testing a strictly literal idea.
Meaning that, unlike when you sit there trading, the machine does
not know that it shouldn't go long because strong resistance is
just above. All it knows is that the automated signal is given.
5. Mix your ideas. Two slightly good ideas may become a great
trading tool when used together.
6. When testing some idea, I recommend trying the following cases:
>> Move a stop to breakeven once your trade has moved into the
money
>> Test with trailing stops. Each time price closes an amount 'x'
in your direction, move the stop by that much. Some trading
systems work well this way.
>> Test the idea of hard profits. Each time your trade goes into
the money by 'n' amount, just take the profit.
That last one has given me some of my best backtesting results
yet. What happens is you come up with an idea which often gives
you a great entry, and often gives you a certain profit, but the
market takes most of it way in whipsaws. So, for example, you
test with larger number of contracts, but always just take the
profit as soon as you get 2 points on ES. You end up missing the
big ones, but all those little ones add up into a bigger pile. Or
you take 3 contracts at that 2 point profit, and let the last one
run. The number of permutations are endless, and only limited by
how much doodling or sit-ups you can handle during backtesting
before going mad.
Backtesting Examples
I wrote a little program to test a basic premise that many have
heard of - trading when moving averages cross.
Example 1:
Basic Premise: Go long when the 13ema crosses over the 21ema
moving average, go short when the 13ema crosses below the 21ema.
Test Criteria: No stops, simple SAR (stop and reverse) trading, 60
days of data, results are raw, no commission costs are included.
Test Object: ES, using 1 contract, trade taken at close of period
when signal is generated, net is number of total points from
trading.
120 Minute
>Trades: 7
>Net: -27.50
>Percent Profitable: 14.28
60 Minute
>Trades: 12
>Net: +116.75
>Percent Profitable: 50
30 Minute
>Trades: 39
>Net: +106
>Percent Profitable: 38.46
Looking at the results, you see that 120 minute is behaving very
poorly. So we take a look at the charts to see what happened.
Red shows the duration of the short trades, and green shows the
duration of the long trades.
ES 120 Minute 3 Month Chart:
ES 60 Minute 3 Month Chart:
So our results are misleading because the 120 minute chart did not
catch the long selloff in January like the 60 minute did. This is
due to the Esignal limitation of 60 days of intraday data, and
hence, the 120 minute chart did not get the crossover trigger for
that short. Esignal will soon be giving users up to a year's
worth of intraday data, and I look forward to rerunning a number
of my backtesting code using a much larger pool of test data.
Example 2:
Basic Premise: Go long when the 9ema crosses over the 17ema moving
average, go short when the 9ema crosses below the 17ema.
Test Criteria: No stops, simple SAR (stop and reverse) trading, 60
days of data, results are raw, no commission costs are included.
Test Object: ES, using 1 contract, trade taken at close of period
when signal is generated, net is number of total points from
trading.
120 Minute
>Trades: 7
>Net: +17.75
>Percent Profitable: 42.85
60 Minute
>Trades: 16
>Net: +149.50
>Percent Profitable: 50
30 Minute
>Trades: 30
>Net: +96.25
>Percent Profitable: 50
You look at those 60 minute chart results and think, zowee!
Remember, this is only 60 days worth of data. It looks promising,
but I would like to see a minimum of a year's worth of data before
becoming too excited. Still, it DOES tickle the greed bone in all
of us, eh? Here is a chart and the actual trades themselves for
that backtest. Note that the extremely good result is due to the
large initial profit from the January drop. The 30 minute test
had twice the trades but a lower profit, indicating that once more
trades were placed into the statistical pool, profits might start
to flatten.
ES 60 Minute Backtest of 9ema/17ema Trades:
ES 60 Minute Backtest of 9ema/17ema Chart:
From here, you can continue to backtest using various moving
averages, types (mix exponential with simple or weighted moving
averages), test using stops, and so on.
Backtesting can be used to let you know how well your signals
actually work, or, over time, can allow you to create that Holy
Grail: an automated trading system that over a period of time
generates money. Let me say it again: "OVER A PERIOD OF TIME
GENERATES MONEY". Every trading system works well in one kind of
environment, and works poorly in another kind of environment.
Over a period of time, say 6 months, a simple system may generate
$3000 for you, but during the first 4 weeks you may get a drawdown
of -$1500 due to market conditions. If you code a system and then
let your program loose to start automatically trading, you have to
have the conviction that over time it will make money for you,
even as you watch in horror when the losses mount those first 4
weeks. To have this conviction in your system, you would have run
numerous backtests which show you that over time you will make
money. Probably.
Even backtesting is not a guarantee for future results, since the
market conditions for the past 3 years may have been completely
different than what you are going to encounter in the next 3
years. However, backtesting is the only way to go about this
process, and as long as you understand that there are no
guarantees, you can at least be somewhat comfortable that you have
some hard numbers behind your trading ideas.
Vlada Raicevic
------------------------------------------------------------
VOTED one of "Best Online Brokers" (4 stars)--Barron's
optionsXpress's "order-entry screens...go far beyond...
other online broker sites"--Barron's
8 different online tools for options pricing, strategy, and charting
Access to options specialists via email, phone or live chat online
Real-Time Buying Power, Account Balances or Cancels
Go to http://www.optionsxpress.com/marketing.asp?source=oetics22
Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------
**********
DISCLAIMER
**********
Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
**************************************************************
ADVERTISING INFORMATION
For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:
Contact Support

The Option Investor Newsletter Sunday 04-06-2003
Sunday 5 of 5
In Section Five:
Covered Calls: Selling Premium With LEAPS
Naked Puts: When It's Time To Go...
Spreads/Straddles/Combos: The Spoils Of War!
Updated In The Site Tonight:
Market Watch: Market Churns - So Do We
Market Posture: Tightening Positions
------------------------------------------------------------
We got trailing stops!
Trade online with trailing stops at optionsXpress, at no extra cost
Trailing stops based on the option price or the stock price
Also place Contingent, Stop Loss, and "One Cancels Other" orders
$1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees!
Go to http://www.optionsxpress.com/marketing.asp?source=oetics23
Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------
*************
COVERED CALLS
*************
Trading Basics: Selling Premium With LEAPS
By Mark Wnetrzak
One of our readers had an excellent question regarding selling
long-term "in-the-money" options in covered-call positions.
Attn: Covered-calls editor
Subject: Selling (ITM) LEAPS in Covered-Calls
Hi Mark,
I recently read about a bullish options strategy where you buy a
stock and sell "in-the-money" LEAPS, using the premium received
from the calls to offset the initial margin/collateral. Based
on my initial review of some ITM LEAPS prices, it would appear
that positions could be entered with no cash investment as the
premium from the sold call would satisfy the margin requirement.
I think this would be a great strategy for buying some of the
slumping small-cap technology stocks. What am I missing here?
DM
Hello DM,
While it is true that this approach can generate a large amount
of premium, sometimes as much as the entire margin requirement,
there is still substantial risk in the position and the margin
interest charges must be factored in to the overall return on
investment. In addition, the margin requirements are different
for ITM positions. The initial collateral needed for a covered
write in a margin account when the option is "out-of-the-money"
is 50% of the stock price less the premium from the call. But,
the collateral requirement for a position in which the option is
"in-the-money" is less favorable with regard to this strategy.
In some cases, a broker will only allow one-half of the value of
the underlying stock, or the strike price of the sold option,
whichever is less, in calculating the collateral requirements of
an ITM covered-write. In other words, if you have a stock that
is trading at $30, and the JAN04-$15 Call is bid at $15, there
would still be a margin requirement of $7.50 (50% of $15).
Of course, even with the relatively small collateral requirement,
the strategy involves tremendous leverage and that's why novice
traders are more likely to get into trouble with this technique.
The lack of committed funds (due to the extremely large option
premiums) often produces a false sense of security and implies
there is virtually an unlimited amount of downside protection.
In addition, margin calls will still be issued if the share value
declines substantially and interest must be paid on the borrowed
portion of portfolio balance while the position in place.
Another disadvantage with LEAPS as covered-calls is their slow
rate of time-value decay. While it is initially beneficial to
option writers, time value can be an obstacle in future position
adjustments. The premiums (due to future potential) inherent in
LEAPS prices can be very large even when they are substantially
in- or out-of-the-money. This characteristic will significantly
affect a trader's ability to roll-out of a position because the
sold (short) call option is relatively expensive to repurchase.
That does mean that a covered-call writer who is faced with the
task of rolling down; buying back a near-term short position and
selling another option with a lower strike price, can't shift to
LEAPS as a means of reducing the overall basis in the underlying
issue. Rather it simply requires one to be aware that he or she
is moving to a less profitable position in return for increased
downside margin. Indeed, the large absolute premiums available
in LEAPS make them an attractive tool in hedging against future
downside activity, but selling long-term options to salvage lost
share value is not always the most efficient technique.
Traders who are considering using LEAPS in covered-calls, whether
with new positions or in an attempt to recover from falling stock
prices, should weigh the advantages of increased leverage against
the costs of maintaining the position and in all cases, utilize
proper money management to maintain an acceptable level of risk
in their portfolios.
Mark W.
OIN
SUMMARY OF PREVIOUS CANDIDATES
*****
The following summary is a reasonable account of the positions
previously offered in this section. However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted. In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed. In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.
Note: Margin not used in calculations.
Stock Price Last Option Price Gain Potential
Symbol Picked Price Series Sold /Loss Mon. Yield
EP 5.20 6.15 APR 5.00 0.70 0.50* 9.7%
VRTS 17.93 19.06 APR 17.50 1.20 0.77* 6.7%
CPN 2.93 4.16 APR 2.50 0.60 0.17* 6.3%
MSCC 10.93 11.77 APR 10.00 1.30 0.37* 5.6%
MRVL 21.91 21.50 APR 20.00 2.65 0.74* 5.6%
DCLK 7.69 7.97 APR 7.50 0.55 0.36* 5.5%
OAKT 3.23 4.06 APR 2.50 0.90 0.17* 5.3%
IDCC 19.99 19.79 APR 17.50 3.30 0.81* 5.3%
FEIC 16.23 16.85 APR 15.00 1.75 0.52* 5.2%
WYNN 15.04 15.34 APR 15.00 0.55 0.51* 5.1%
VECO 15.91 15.95 APR 15.00 1.70 0.79* 4.8%
SOHU 11.73 12.29 APR 10.00 2.05 0.32* 4.8%
PEGS 10.90 11.25 APR 10.00 1.40 0.50* 4.6%
ILXO 8.40 10.25 APR 7.50 1.20 0.30* 4.5%
SONE 5.20 4.89 APR 5.00 0.55 0.24 4.5%
BCGI 16.14 15.00 APR 15.00 1.70 0.56 4.2%
SNDK 19.11 17.74 APR 17.50 2.40 0.79* 4.1%
TELK 13.37 13.71 APR 12.50 1.20 0.33* 3.9%
ALTR 13.84 14.16 APR 12.50 1.80 0.46* 3.3%
* Stock price is above the sold striking price.
Comments:
Does anybody wonder what investors will focus on once the
Iraqi situation is resolved? Until then, the major averages
continue to be held hostage by war news while economic news
is ignored. As for the covered-call portfolio, a few issues
were closed early (listed below) in a demonstration of capital
preservation. Over all, the portfolio is performing fairly
well and may even be causing some "call-selling" regret in
the more bullish issues. Still, there are a few candidates
for the early-exit watch list which still include Veeco
Instruments (NASDAQ:VECO) and Sandisk (NASDAQ:SNDK) from last
week. Going into next week, keep a close watch on S1 Corp.
(NASDAQ:SONE) and Boston Communications Group (NASDAQ:BCGI),
as well as any other issues that are acting weaker than
expected.
Positions Previously Closed: Manugistics (NASDAQ: MANU) and
RSA Security (NASDAQ:RSAS).
NEW CANDIDATES
*********
Sequenced by Target Yield (monthly basis)
*****
Stock Last Option Option Last Open Cost Days Target
Symbol Price Series Symbol Bid Int. Basis Exp. Yield
NLS 15.31 APR 15.00 NLS DC 0.95 4291 14.36 14 9.7%
ADLR 13.75 APR 12.50 UAH DV 1.60 5988 12.15 14 6.3%
ELBO 18.21 APR 17.50 LQB DW 1.10 161 17.11 14 5.0%
NEOL 13.50 MAY 12.50 UOE EV 1.80 50 11.70 42 5.0%
UNTD 19.23 MAY 17.50 QAB EW 2.80 223 16.43 42 4.7%
COMS 5.17 MAY 5.00 THQ EA 0.45 955 4.72 42 4.3%
MSCC 11.77 MAY 10.00 QMS EB 2.25 0 9.52 42 3.7%
Company Descriptions
LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, TY-Target Yield (monthly basis).
*****
NLS - The Nautilus Group $15.31 *** Stage I Base ***
Nautilus (NYSE:NLS) is a marketer, developer and manufacturer of
branded health and fitness products sold under such names as
Nautilus, Bowflex, Schwinn and StairMaster. The company markets
its Bowflex home fitness equipment and Nautilus Sleep Systems
through its direct-marketing channel, using a combination of
television commercials, infomercials, response mailings, the
Internet and inbound/outbound call centers. The company sells
its Nautilus, Schwinn and StairMaster commercial fitness equipment
through its sales force and selected dealers to health clubs,
government agencies, hotels, corporate fitness centers, colleges,
universities and assisted living facilities. Nautilus has been
forging a Stage I base since October and this position offers
favorable short-term speculation in a recovering issue.
APR 15.00 NLS DC LB=0.95 OI=4291 CB=14.36 DE=14 TY=9.7%
*****
ADLR - Adolor $13.75 *** Positive Drug Data ***
Adolor (NASDAQ:ADLR) is a therapeutic-based biopharmaceutical
company engaged in the discovery, development and commercialization
of proprietary pharmaceutical products for the treatment of pain
and the side effects that are caused by current pain treatments.
The company has a portfolio of small-molecule product candidates
that are in various stages of development. Adolor's lead product
candidate, alvimopan (ADL 8-2698), is designed to selectively block
the effects of narcotic analgesics on the gastrointestinal tract.
The company's initial drug discovery and development activities
focus on three aspects of pain management: reversal or prevention
of gastrointestinal effects of narcotic analgesics administered
during or following surgical procedures or for the treatment of
pain; novel mu and kappa opioid receptor-based analgesics that
act on peripheral opioid receptors and not in the central nervous
system, and narcotic analgesic products with significantly reduced
side effects. Shares of Adolor spiked last week after the company
said its experimental medicine for bowel obstruction was shown to
be effective in a pivotal-stage III trial. Investors can use this
short-term play to speculate on the new trend at the risk of
owning Adolor near a cost basis of $12.25.
APR 12.50 UAH DV LB=1.60 OI=5988 CB=12.15 DE=14 TY=6.3%
*****
ELBO - Electronics Boutique $18.21 *** Tops Estimates! ***
Electronics Boutique (NASDAQ:ELBO) is a specialty retailer of
electronic games. The company sells video game hardware and
software, PC entertainment software and related accessories and
products. The company operates stores primarily under the names
Electronics Boutique and EB GameWorld, in Australia, Canada,
Denmark, Germany, Italy, New Zealand, Norway, South Korea, Sweden
and the United States. The company also operates a commercial
Website under the URL address, www.ebgames.com. As of February 2,
2002, the company operated 937 stores. Electronics Boutique said
on Thursday its quarterly profit surged 71% from last year and
strong video game software sales should bode well for the future.
The current technical outlook is recovering and our position
offers excellent reward potential at the risk of owning this
industry-leading issue at a favorable cost basis near historical
support.
APR 17.50 LQB DW LB=1.10 OI=161 CB=17.11 DE=14 TY=5.0%
*****
NEOL - NeoPharm $13.50 *** Break Out! ***
NeoPharm (NASDAQ:NEOL) is a biopharmaceutical company engaged in
the research, development and commercialization of drugs for the
treatment of various cancers. NEOL currently has a portfolio of
eight anti-cancer drugs, six of which are in clinical trials.
The company has built its drug portfolio based on its two novel
proprietary technology platforms: the NeoLipid electrostatic
liposome drug delivery platform and a tumor-targeting platform.
NeoPharm has developed an electrostatic liposome encapsulated
antisense cRaf oligonucleotide, LE-AON, which inhibits the
expression of the cRaf protein and thus may have potential to
enhance the effectiveness of radiation in the treatment of certain
cancers. The company intends to develop LE-AON as a treatment
for radiation resistant tumors and as an enhancement to standard
chemotherapeutic agents. NeoPharm recently announced that it has
reached an agreement with Pharmacia Corporation and Upjohn, to
settle pending lawsuits. We simply favor the bullish move above
the 150-dma and near-term resistance supported by heavy volume.
Traders can speculate on the near-term performance of the issue
with this conservative position.
MAY 12.50 UOE EV LB=1.80 OI=50 CB=11.70 DE=42 TY=5.0%
*****
UNTD - United Online $19.23 *** Internet Sector ***
United Online (NASDAQ:UNTD) is an Internet service provider
offering consumers free and value-priced Internet access and
e-mail. Its Internet access services are offered through its
NetZero and Juno subsidiaries under their brands, and are
available in more than 5,000 cities across the United States
and Canada. In addition, the company offers marketers numerous
online advertising products, as well as online market research
and measurement services. As of June 30, 2002, the company had
approximately 1.7 million subscribers to its pay Internet access
services and approximately 4.8 million active users, including
pay users. Active users include all pay users and those free
users that have logged onto its services during the preceding
31-day period. The company provides billable dial-up Internet
access services for $9.95 per month. The recent price history
of United Online reveals one of the better charts we've seen in
the technology group (jinx?) and investors who want to diversify
their portfolio should consider this position.
MAY 17.50 QAB EW LB=2.80 OI=223 CB=16.43 DE=42 TY=4.7%
*****
COMS - 3Com $5.17 *** Bracing For A Rally! ***
3Com (NASDAQ:COMS) is engaged in the computer networking industry.
3Com's technology provides the Company's channel partners and
customers with high-value, practical-to-use solutions. 3Com
operates three segments: Business Networks Company, Business
Connectivity Company and CommWorks Corporation. The Business
Networks Company delivers networking products and solutions that
are feature-rich, and can support the increasingly complex and
demanding application environments, while remaining easy to
install, use and operate, and affordable to own. The Business
Connectivity Co. is a provider of easy-to-use, high-performance
connectivity solutions at the edge of the network that enable
users to access information. CommWorks develops and deploys
carrier-class, Internet protocol (IP)-based multi-service access
and service creation platforms for telecommunications service
providers. 3Com has been forming a Stage I base for almost 2
years and the recent technical strength bodes well for the
future. The stock has excellent buying support near our cost
basis and the favorable option premiums will allow traders to
speculate, in a conservative manner, on the future movement of
the company's share value. Try target shooting a lower net-debit
to move the cost basis closer to support and raise the potential
yield
MAY 5.00 THQ EA LB=0.45 OI=955 CB=4.72 DE=42 TY=4.3%
*****
MSCC - Microsemi $11.77 *** New Military Orders! ***
Microsemi (NASDAQ:MSCC) is a designer, manufacturer and marketer
of analog and mixed-signal integrated circuits (ICs) and power
and signal discrete semiconductors. Microsemi's semiconductors
manage and regulate power, protect against transient voltage
spikes and transmit, receive and amplify signals. Microsemi
operates primarily in a single industry segment as a manufacturer
of semiconductors. Microsemi's products include individual
components, as well as complete circuit solutions that enhance
customer designs by providing battery optimization, reducing
size or protecting circuits. Microsemi has received several
upgrades this month as analysts see the company benefiting from
military-related orders, which have been "consistently strong and
should remain robust for the foreseeable future." Technically,
the bullish breakout on heavy volume suggests further upside
potential and this position offers favorable speculation in a
bullish stock with a cost basis close to support.
MAY 10.00 QMS EB LB=2.25 OI=0 CB=9.52 DE=42 TY=3.7%
*****
*****************
SUPPLEMENTAL COVERED CALL CANDIDATES
*****************
The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions. As
with any investment, you must decide if the selections meet your
criteria for potential plays. Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook. They will not be included in
the weekly portfolio summary.
Sequenced by Target Yield (monthly basis)
*****
Stock Last Option Option Last Open Cost Days Target
Symbol Price Series Symbol Bid Int. Basis Exp. Yield
RSTO 2.66 MAY 2.50 URF EZ 0.40 597 2.26 42 7.7%
NFLX 19.55 APR 17.50 QNQ DW 2.50 350 17.05 14 5.7%
BOBJ 18.31 APR 17.50 BBQ DW 1.25 451 17.06 14 5.6%
MRVL 21.50 APR 20.00 UVM DD 2.00 7871 19.50 14 5.6%
ASKJ 8.10 MAY 7.50 AUK EU 1.10 103 7.00 42 5.2%
IMMU 3.34 MAY 2.50 QUI EZ 1.00 8 2.34 42 5.0%
SOHU 12.29 MAY 10.00 UZK EB 2.90 66 9.39 42 4.7%
MOGN 13.25 MAY 12.50 QOG EV 1.50 106 11.75 42 4.6%
ACMR 15.50 MAY 15.00 QRV EC 1.35 1 14.15 42 4.4%
RNBO 10.32 MAY 10.00 BQO EB 0.85 92 9.47 42 4.1%
ELY 12.60 MAY 12.50 ELY EV 0.70 1258 11.90 42 3.7%
ISSX 11.65 MAY 10.00 ISU EB 2.10 713 9.55 42 3.4%
*****************
NAKED PUT SECTION
*****************
Options 101: When It's Time To Go...
By Ray Cummins
The recent volatility in the market has made "premium-selling" a
difficult strategy to master and it's no surprise that our readers
have provided some great questions concerning exit techniques with
naked-puts.
Attn: Naked-Puts Editor
Subject: A Unique Post-Expiration Assignment
Ray,
I thought I'd write you about some recent experiences of mine
writing naked puts. I wrote Feb 10 puts on VXGN when it was
slammed on rumors or trial failures, and I thought I was home-free
on expiration Friday when VXGN closed at $13 or something like
that. But after the bell, they announced that on Monday they
would provide results of their long-awaited AIDSVax trials, and I
was assigned all the puts. When the results were announced on
Monday, they were poor and the stock finally opened at like $5-6.
Why would someone assign shares $3 out of the money unless they
had inside info? Perhaps they were just unloading a partial
position for risk mgmt? Who knows. Any advice on this? OCC
(Options Clearing Corp.) helped a bit, but nothing's changed for
me.
In a similar vein, ADLR just took a tumble below $10 (I had
written Apr 10's) in advance of announcements, but today recovered
huge after the announcement, so I closed out the puts for $0.10.
That's too little to try to save with 2.5 weeks until expiration.
SM
Hello,
Your experience with Vaxgen (NASDAQ:VXGN) is certainly unique
from a statistical viewpoint, however that type of activity (OTM
put options exercised after expiration Friday) has been much more
common with the recent volatile market conditions. I suppose the
primary reason is the potential for catastrophic news and based on
your unusual assignment, that possibility is a significant concern
among traders. I agree that it is "strange" to exercise options
which are $3 OTM but as you know, the option holder has the right
to exercise his or her position prior to expiration regardless of
whether the options are in- or out-of-the-money. In addition, an
option writer may be assigned on a short option position at any
time during the life of the option, even after trading has ended
on the last day of the expiration period. To ensure fairness in
the distribution of stock and index option assignments, the OCC
utilizes a random procedure to assign exercise notices, both to
its clearing member accounts (brokerages) and to the individual
accounts which are short the options. You mentioned that your
VXGN options were assigned based on news that occurred Friday
"after the bell" and of course, this is perfectly legal (although
uncommon) as the OCC processes all expiration-related exercises
and assignments on the following Saturday. Clearing member
accounts are processed Sunday and individual customers are
notified prior to the next business day.
One of the easiest ways to avoid this situation in potentially
volatile (biotech, drug, merger- or earnings-related) positions
is to simply repurchase the short option prior to expiration.
Your Adolor (NASDAQ:ADLR) trade is a good example of that kind
of conservative portfolio management and although the cost may
seem excessive at the time, it's obvious that foregoing a small
amount of profit (despite the fact it may appear "overcautious")
can prevent catastrophically large losses when unexpected events
occur.
Thank you for sharing your trading activities with our readership
and rest assured, the lessons you learned will provide useful
education for all of us.
Ray
Attn: Naked-Puts Editor
Subject: Exit Strategies With Deep-OTM Options
Hi Ray,
Thank you so much for the eloquent answer to my question of exit
strategies when sold puts approach in the money. I loved the
article you included by Mr. Olgivie. Very enlightening. Could
you ask him for me if he has a screen to find stocks at or near
the bottom of their bollinger bands? My next question is to you.
You seem to have a marvelous percentage on your sold put
recommendations being out of the money at expiration. I find
however that those with premiums received of .35 or .25 don't
have much wiggle room as they approach expiration as the market
makers very seldom drop an ask below .25 until the option is WAY
out of the money. This then causes you to hold on to it until
expiration. Does that ever cause problems? I mean this question
with respect and I'm certainly not questioning your method.
Again you're the greatest and thanks for your time.
RC
Hello Again,
I'll forward your comments to Robert Ogilvie and he should respond
directly concerning Bollinger bands/entry points etc.
As far as deep-OTM puts, you are correct in stating that there is
very little "wiggle room" in the price of the option, especially
if you are using some type of mechanical stop-order system to
close the position. However, I would not let that fact prevent
you from profiting with this approach as it is simply the nature
of the strategy. Most traders alter their position adjustment
and closing methods when using this technique to allow for the
smaller downside margin and in many cases, that involves paying a
premium to exit a losing play. Of course, the extremely high
probability of profit is the theoretical component that makes this
strategy viable and you must play to this strength (as with any
technique) to make it successful in the long-run. Another key
to consistent gains with this particular variation of naked-put
writing is careful position selection; the potential for a "gapping"
issue must be limited as much as practical through extensive due
diligence (review current news, identify future events). With
that idea in mind, the issues offered in the OIN (or any other
premium-based list) must be culled through further research to
produce the best possible candidates, based on a balance of option
premium and expected volatility.
Despite the relatively high success rate with deep-OTM put positions,
don't be lulled into a sense of false security with this strategy.
Limited-profit techniques are always the most difficult to master
because there are never any large gains to offset the mistakes you
make in managing the losing plays, thus you simply can't make too
many mistakes. Such is the life of the option trader...
There are no magic answers on this subject...but I hope that helps!
Good Luck!
SUMMARY OF PREVIOUS CANDIDATES
*****
The following summary is a reasonable account of the positions
previously offered in this section. However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted. In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed. In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.
Stock Price Last Option Price Gain Simple Max
Symbol Picked Price Series Sold /Loss Yield Yield
NFLX 21.06 19.55 APR 17.50 0.40 0.40* 3.4% 11.0%
IMCL 15.70 17.50 APR 12.50 0.50 0.50* 3.0% 9.9%
CREE 20.54 22.70 APR 17.50 0.50 0.50* 3.2% 9.6%
MOGN 10.96 13.25 APR 10.00 0.50 0.50* 3.8% 9.2%
IMCL 18.36 17.50 APR 15.00 0.25 0.25* 2.5% 8.6%
XLNX 25.38 24.19 APR 22.50 0.75 0.75* 3.0% 8.1%
MVK 18.71 18.29 APR 17.50 0.35 0.35* 3.0% 7.7%
IDCC 22.69 19.79 APR 17.50 0.25 0.25* 2.1% 7.6%
AMZN 24.71 26.22 APR 22.50 0.65 0.65* 2.6% 6.8%
NVLS 30.87 28.35 APR 25.00 0.40 0.40* 1.8% 6.3%
ADTN 37.10 37.79 APR 30.00 0.35 0.35* 1.7% 6.3%
AMZN 27.93 26.22 APR 22.50 0.35 0.35* 1.7% 6.2%
MATK 25.32 27.95 APR 22.50 0.55 0.55* 2.2% 6.1%
CYBX 19.15 21.48 APR 17.50 0.45 0.45* 2.3% 6.1%
CVC 20.30 19.99 APR 17.50 0.30 0.30* 1.9% 5.8%
CYBX 21.26 21.48 APR 20.00 0.30 0.30* 2.2% 5.8%
OVTI 21.18 22.00 APR 15.00 0.30 0.30* 1.8% 5.7%
CMCSA 30.80 29.88 APR 27.50 0.50 0.50* 2.0% 5.7%
LLTC 32.58 32.85 APR 27.50 0.55 0.55* 1.8% 5.6%
YHOO 23.97 24.05 APR 20.00 0.30 0.30* 1.7% 5.5%
EXPE 37.14 49.71 APR 30.00 0.50 0.50* 1.5% 5.3%
JCOM 27.54 32.12 APR 22.50 0.30 0.30* 1.5% 5.2%
PSUN 19.73 21.92 APR 17.50 0.35 0.35* 1.8% 5.1%
JCOM 30.05 32.12 APR 25.00 0.25 0.25* 1.5% 5.0%
MEDI 30.68 33.57 APR 27.50 0.65 0.65* 1.8% 4.8%
IRF 23.26 19.43 APR 20.00 0.40 -0.17 0.0% 0.0%
* Stock price is above the sold striking price.
Comments:
Investors returned to the equity markets this week amid optimism
of a swift victory for the U.S. in the war with Iraq. On Friday,
infantry units stepped-up the attack on eastern Baghdad, just one
day after coalition forces seized the city's airport and claimed
it as their biggest prize yet in the 17-day old war to oust Iraqi
President Saddam Hussein. Analysts say the conflict could end in
a matter of days and that would certainly provide the market with
fuel for a rally. However, it pays to be cautious in the current
environment thus traders are warned to be ever diligent in their
portfolio management. As noted last week, International Rectifier
(NYSE:IRF) has made the "early-exit" list and the position will be
closed in the interest of capital preservation. Issues including
Xylinx (NASDAQ:XLNX), Maverick Tube (NYSE:MVK), and Interdigital
Communications (NASDAQ:IDCC) should be monitored for "bearish"
indications in the coming sessions.
Previously Closed Positions: None
WARNING: THE RISK IN SELLING NAKED OPTIONS IS SUBSTANTIAL!
*****
The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position. The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold. Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times. In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own! Why? Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio. It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.
MARGIN REQUIREMENTS
The Initial Margin is the amount of collateral you must have in
your account to initiate the position. In specific terms, margin
refers to cash or securities required of an option writer by his
brokerage firm as collateral for the writer's obligation to buy
or sell the underlying interest if assigned through an exercise.
The Maintenance Margin is the amount of cash (or securities)
required to offset the changing collateral requirements of the
written options in your portfolio. As the price of the option
and the underlying stock changes, so does the maintenance margin.
With (short) put options, the margin requirements can increase
when the underlying stock price declines and also when it rises
significantly. The reason is the manner in which the collateral
amount is determined (with the formula listed above) and traders
should always consider not only the initial margin requirement,
but also the maximum margin needed for the life of the position.
Option writers occasionally have to meet calls for additional
margin during adverse market movements and even when there is
enough equity in the account to avoid a margin call, the need
for increased collateral will make that equity unavailable for
other purposes. Please consider these facts carefully before
you initiate any "naked" option positions.
For more information on margin requirements, please refer to:
http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf
MONTHLY YIELD: MAXIMUM & SIMPLE
The Maximum Monthly Yield (listed in the summary and with each
new candidate) is the greatest possible profit available in the
position. This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations. Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The Simple Monthly Yield is based on the cost of the underlying
issue (in the event of assignment), including the premium from
the sold option, thus it reflects the maximum potential loss in
the position.
NEW CANDIDATES
*********
Sequenced by Maximum Yield (monthly basis - margin)
*****
Stock Last Option Option Last Open Cost Days Simple Max
Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield
RMBS 15.75 MAY 12.50 BNQ QV 0.55 3311 11.95 42 3.3% 10.8%
NFLX 19.55 MAY 15.00 QNQ QC 0.60 472 14.40 42 3.0% 9.6%
EYE 11.96 MAY 10.00 EYE QB 0.35 300 9.65 42 2.6% 8.0%
JCOM 32.12 MAY 25.00 JQF QE 0.75 106 24.25 42 2.2% 7.6%
SEPR 16.35 MAY 12.50 ERQ QV 0.35 2589 12.15 42 2.1% 7.0%
RIMM 14.88 MAY 12.50 RUL QV 0.35 35 12.15 42 2.1% 6.5%
BOBJ 18.31 MAY 15.00 BBQ QC 0.35 0 14.65 42 1.7% 5.8%
CMCSK 28.44 MAY 25.00 CQK QE 0.60 685 24.40 42 1.8% 5.1%
Company Descriptions
LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, SY-Simple Yield (monthly basis - without
margin), MY-Maximum Yield (monthly basis - using margin).
*****
RMBS - Rambus $15.75 *** Rally Resumes! ***
Rambus (NASDAQ:RMBS) designs, develops and markets "chip-to-chip"
interface solutions that enhance the performance and effectiveness
of its client's chip and system products. These solutions include
multiple chip-to-chip interface products, which can be grouped into
two categories: memory interfaces and logic interfaces. Rambus'
memory interface products provide an interface between memory chips
and logic chips. In addition, the firm's logic interface products
provide an interface between two logic chips. Rambus has two major
memory interface products: Rambus dynamic random access memory and
Yellowstone. Additionally, it offers a logic interface product for
high-speed serial chip-to-chip communications between logic chips
in a range of computing, networking and communications applications.
RMBS shares soared in January after a favorable ruling in a patent
case. A federal appeals court ruled that Rambus had not committed
fraud in a dispute involving memory maker Infineon, reversing the
ruling of a lower court, and the court also revived Rambus' patent
infringement claim against Infineon. The bullish trend continued
this week after a U.S. appeals court denied a request by Infineon
for a full court rehearing of the case against Rambus. Investors
who think the upside activity will continue can speculate on that
outcome in a conservative manner with this position.
MAY 12.50 BNQ QV LB=0.55 OI=3311 CB=11.95 DE=42 TY=3.3% MY=10.8%
*****
NFLX - Netflix $19.55 *** Move Over Blockbuster! ***
Netflix (NASDAQ:NFLX) is an online entertainment service in the
United States that provides more than 600,000 subscribers access
to a comprehensive library of more than 11,500 movie, television
and other filmed entertainment titles. The company's standard
subscription plan allows subscribers to have three titles out at
the same time with no due dates, late fees or shipping charges.
Subscribers can view as many titles as they want in a month and
they select these titles at the firm's Website (www.netflix.com)
aided by its proprietary CineMatch technology. They receive them
on DVD by first-class mail and return them to the company at their
convenience using prepaid mailers. Once a title has been returned,
Netflix mails the next available title in a subscriber's queue.
Netflix is "all the rage" among home-movie watchers and the firm's
subscription base in growing exponentially. The solid fundamental
outlook for this up-and-coming company has translated into higher
share values and investors who wouldn't mind owning the issue near
a cost basis of $15 can profit from future upside activity with
this position.
MAY 15.00 QNQ QC LB=0.60 OI=472 CB=14.40 DE=42 TY=3.0% MY=9.6%
*****
EYE - Visx $11.96 *** Lawsuit Settlement! ***
Visx (NASDAQ:EYE) is engaged in the development of proprietary
technologies and systems for laser vision correction. Laser
vision correction relies on a computerized laser system to treat
nearsightedness, farsightedness and astigmatism with the goal of
eliminating or reducing reliance on eyeglasses and contact lenses.
The company's Excimer Laser System (the Visx System) ablates or
removes submicron layers of tissue from the surface of the cornea
to reshape the eye, thereby improving vision. The Visx system
also treats certain types of corneal pathologies in an outpatient
procedure known as PhotoTherapeutic Keratectomy. The company's
significant customers include Laser Vision Centers, and TLC Laser
Eye Centers. Visx and its Japanese rival, Nidek, have ended a
five-year legal battle over patents for laser vision-correction
equipment. Under the settlement, Visx agreed to pay $9 million
in antitrust and related claims, and expects to record the claims
as a charge against its fourth-quarter results. Investors were
happy with the outcome of the settlement and the recent technical
indications reflect the potential for higher share values in the
near future.
MAY 10.00 EYE QB LB=0.35 OI=300 CB=9.65 DE=42 TY=2.6% MY=8.0%
*****
JCOM - j2 Global Communications $32.12 *** Entry Point! ***
j2 Global Communications (NASDAQ:JCOM) provides outsourced value
added messaging and communications services to individuals and
businesses throughout the world. The company offers faxing and
voicemail solutions, Web initiated conference calling, document
management solutions and unified messaging services. j2 Global
markets its services principally under the brand names eFax and
jConnect. The company delivers its services through its global
telephony/Internet protocol network, which spans more than 600
cities in 18 countries across five continents, including four
capital cities in Latin America where j2 Global is in the process
of launching its unique service. JCOM has been one of the best
performing technology issues in recent sessions, up almost 50%
over the last two weeks, and investors are optimistic about the
company's upcoming earnings report (4/21). Traders who believe
the rally will continue can speculate on that outcome with this
position.
MAY 25.00 JQF QE LB=0.75 OI=106 CB=24.25 DE=42 TY=2.2% MY=7.6%
*****
SEPR - Sepracor $16.35 *** Drug Sector Speculation ***
Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company
dedicated to treating and preventing human disease through the
discovery, development and commercialization of pharmaceutical
compounds, including product candidates directed toward serving
unmet medical needs. The firm's proprietary compounds are either
single-isomer or active metabolite forms of existing drugs, which
Sepracor refers to as improved chemical entities, or new chemical
entity compounds, which are unrelated to current products. In
February, Sepracor was awarded a patent covering the use of Estorra
for the treatment of insomnia. Earlier this month, Sepracor said
the FDA had filed the company's New Drug Application for Estorra
and on Thursday, Merrill Lynch raised its rating on the company's
shares to "buy" from "neutral," saying the stock is "attractive."
Investors who wouldn't mind owning this popular drug stock near a
cost basis of $12 should consider this position.
MAY 12.50 ERQ QV LB=0.35 OI=2589 CB=12.15 DE=42 TY=2.1% MY=7.0%
*****
RIMM - Research In Motion $14.88 *** Favorable Earnings! ***
Research In Motion Limited (NASDAQ:RIMM) is a designer, builder,
and marketer of wireless solutions for the mobile communications
market. Through development and integration of hardware, software
and services, the firm provides solutions for seamless access to
time-sensitive information and communications, including e-mail,
telephone, messaging and Internet- and intranet-based applications.
The company's technology also enables a broad array of third-party
developers and manufacturers around the world to enhance their own
products and services with wireless connectivity. RIM's portfolio
of products includes a family of wireless handhelds, the BlackBerry
wireless e-mail solution, embedded radio modems and a suite of
software development tools. Shares of RIMM rallied this week after
the firm reported better-than-expected results and raised revenue
guidance. A number of brokerages including UBS Warburg and Lehman
Brothers upped their ratings on the stock and technology investors
who like the outlook for the company should consider this position.
MAY 12.50 RUL QV LB=0.35 OI=35 CB=12.15 DE=42 TY=2.1% MY=6.5%
*****
BOBJ - Business Objects S.A. $18.31 *** Trading Range? ***
Business Objects S.A. (NASDAQ:BOBJ) develops, sells and supports
business intelligence software for client/server environments,
intranets, extranets and the Internet. The three main markets
for BI are enterprise, extranet and analytic applications. For
enterprise, Business Objects products provide employees with
information to make better business decisions. Deployments can
range from small workgroups to enterprise deployments exceeding
50,000 users. For extranet, products allow organizations to
build stronger relationships by linking customers, partners and
suppliers via the world-wide web, and for analytic applications,
products offer packaged practice analytics, alerts driven by
business rules and workflow for specific business users, such as
sales managers or supply chain managers. Business intelligence
stocks soared this week after an upbeat earnings report by Cognos
(NASDAQ:COGN) and an upgrade of Business Objects S.A., which was
raised to "outperform" by CS First Boston. The analyst said the
firm "is one of the few hot spots in tech" and traders who agree
with that outlook can establish a conservative basis in the issue
with this position.
MAY 15.00 BBQ QC LB=0.35 OI=0 CB=14.65 DE=42 TY=1.7% MY=5.8%
*****
CMCSK - Comcast (Class A) $28.44 *** Bullish Sector! ***
Comcast (NASDAQ:CMCSK) is a cable operator involved in three
principal lines of business: cable, through the development,
management and operation of broadband communications networks;
commerce, through QVC, its electronic retailing subsidiary; and
content, through its consolidated subsidiaries Comcast Spectacor,
Comcast SportsNet, Comcast SportsNet Mid-Atlantic, Comcast Sports
Southeast, E! Entertainment Television, The Golf Channel, Outdoor
Life Network, G4 Media, and through other programming investments.
The company has deployed digital cable applications and high-speed
Internet service to most of its cable communications systems.
The media-cable TV sector is bullish and Comcast has been one of
the best performing issues in the group over the past few weeks.
Investors who believe the trend will continue should consider this
position.
MAY 25.00 CQK QE LB=0.60 OI=685 CB=24.40 DE=42 TY=1.8% MY=5.1%
*****
*****************
SUPPLEMENTAL NAKED PUT CANDIDATES
*****************
The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions. As
with any investment, you must decide if the selections meet your
criteria for potential plays. Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook. They will not be included in
the weekly portfolio summary.
Sequenced by Maximum Yield (monthly basis - margin)
*****
Stock Last Option Option Last Open Cost Days Simple Max
Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield
IDCC 19.79 APR 17.50 DAQ PW 0.45 1442 17.05 14 5.7% 16.1%
ADTN 37.79 APR 35.00 RQA PG 0.80 4655 34.20 14 5.1% 13.2%
OVRL 15.99 MAY 15.00 QOJ QC 0.75 16 14.25 42 3.8% 8.8%
MSTR 26.39 APR 22.50 EOU PX 0.25 430 22.25 14 2.4% 7.9%
SLAB 27.09 MAY 22.50 QFJ QX 0.75 300 21.75 42 2.5% 7.8%
CMCSA 29.88 APR 27.50 CCQ PY 0.35 4934 27.15 14 2.8% 7.7%
AVID 23.99 MAY 20.00 AQI QD 0.65 15 19.35 42 2.4% 7.5%
ELY 12.60 MAY 12.50 ELY QV 0.50 73 12.00 42 3.0% 6.7%
DIGE 20.00 MAY 17.50 QDG QW 0.55 15 16.95 42 2.3% 6.6%
BSTE 42.33 MAY 35.00 BQS QG 0.85 62 34.15 42 1.8% 5.9%
CYBX 21.48 MAY 20.00 QAJ QD 0.60 11 19.40 42 2.2% 5.6%
CIMA 22.86 MAY 20.00 UVK QD 0.50 12 19.50 42 1.9% 5.3%
SEE DISCLAIMER IN SECTION ONE
*****************************
************************
SPREADS/STRADDLES/COMBOS
************************
The Spoils Of War!
By Ray Cummins
The major equity averages reaped the benefits of military gains in
Iraq this week, but it remains to be seen if stocks can continue
to recover in the midst of an economic slump.
On Friday, the Dow Jones industrial average rose 36 points to 8,277
amid a late-session surge in blue-chips. McDonald's (NYSE:MCD),
J.P. Morgan (NYSE:JPM), and American Express (NYSE:AXP) were among
the best performing issues. In contrast, profit warnings and stock
downgrades weighed heavily on the technology-laced NASDAQ Composite
Index, which eventually closed 13 points lower at 1,383. Software,
semiconductor and telecom shares led the decline. The broader S&P
500 ended up 2 points at 878 as investors sought bargains in home
improvement retailers, food distributors, auto parts, and airlines
issues. Among the losers were tobacco, healthcare facilities, gold,
and oil and gas drilling stocks. Advancers edged past decliners 6
to 5 on the New York Stock Exchange while losers paced winners by
roughly the same margin on the NASDAQ. Trading volume was average
with 1.2 billion shares changing hands on the Big Board while 1.3
billion shares were crossed on the technology exchange. The bond
market moved lower as investors sorted through conflicting news on
the war in Iraq, hesitating to commit money ahead of developments
the weekend might bring. The 10-year treasury notes dropped 8/32,
with its yield rising to 3.94%.
*****************
PORTFOLIO SUMMARY
*****************
The following summary is a reasonable account of the positions
previously offered in this section. However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted. In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed. In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.
PUT CREDIT SPREADS
******************
Symbol Pick Last Month LP SP Credit CB G/L Status
AMGN 55.70 59.28 APR 47 50 0.25 49.75 $0.25 Open
EXPE 35.19 49.71 APR 27 30 0.30 29.70 $0.30 Open
APOL 47.44 49.80 APR 40 45 0.50 44.50 $0.50 Open
MMM 125.55 133.98 APR 110 115 0.50 114.50 $0.50 Open
FLR 32.11 34.98 APR 25 30 0.50 29.50 $0.50 Open
OEX 424.07 446.69 APR 375 380 0.45 379.55 $0.45 Open
CAT 52.55 51.47 APR 45 47 0.30 47.20 $0.30 Open
EXPD 37.68 35.73 APR 30 35 0.60 34.40 $0.60 Open
GILD 41.53 44.15 APR 35 37 0.35 37.15 $0.35 Open
ANSI 42.08 41.98 APR 35 40 0.45 39.55 $0.45 Open
BJS 35.08 34.19 APR 30 32 0.25 32.25 $0.25 Open
IBM 80.85 80.79 APR 70 75 0.60 74.40 $0.60 Open
LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss
Expeditors International (NASDAQ:EXPD) is testing support near
$35 and any further downside activity would signal a potential
exit in the bullish position.
CALL CREDIT SPREADS
*******************
Symbol Pick Last Month LC SC Credit CB G/L Status
TOT 65.30 67.00 APR 75 70 0.60 70.60 $0.60 Open
XAU 67.44 64.74 APR 80 75 0.50 75.50 $0.50 Open
ACS 44.26 41.69 APR 55 50 0.55 50.55 $0.55 Open
NOC 82.35 83.26 APR 95 90 0.60 90.60 $0.60 Open
SII 34.10 34.69 APR 40 37 0.25 37.75 $0.25 Open
FNM 66.70 68.10 APR 75 70 0.50 70.50 $0.50 Open
QLGC 38.22 38.45 APR 45 42 0.25 42.75 $0.25 Open
SYMC 40.25 39.63 APR 50 45 0.30 45.30 $0.30 Open
LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss
Previously closed positions include: International Paper (NYSE:IP)
and Chiron (NASDAQ:CHIR), both of which are positive, and United
Health (NYSE:UNH).
CALL DEBIT SPREADS
******************
Symbol Pick Last Month LC SC Debit B/E G/L Status
STN 19.40 21.19 APR 17 20 1.60 19.10 0.90 Open
EBAY 83.91 88.72 APR 70 75 4.50 74.50 0.50 Open
PPD 18.16 18.21 APR 15 17 1.75 16.75 0.75 Open
LXK 67.80 69.52 APR 60 65 4.40 64.40 0.60 Open
LC = Long Call SC = Short Call B/E = Break-Even G/L = Gain/Loss
PUT DEBIT SPREADS
*****************
Symbol Pick Last Month LP SP Debit B/E G/L Status
QLGC 39.98 38.45 APR 47 45 2.30 45.20 0.20 Open
LP = Long Put SP = Short Put B/E = Break-Even G/L = Gain/Loss
The bearish spread in Federal Express (NYSE:FDX) has been closed
to limit potential losses.
SYNTHETIC (BULLISH)
*******************
Stock Pick Last Expir. Long Short Initial Max. Play
Symbol Price Price Month Call Put Credit Value Status
MEDI 32.65 33.57 APR 35 30 0.10 0.70 Open?
ADTN 38.14 37.79 APR 45 30 0.10 0.60 Open?
Medimmune (NASDAQ:MEDI) has achieved the target exit profit as has
Adtran (NASDAQ:ADTN). The speculative position in Multimedia Games
(NASDAQ:MGAM) has been previously closed to limit potential losses.
CALENDAR & DIAGONAL SPREADS
***************************
Stock Pick Last Long Short Current Max Play
Symbol Price Price Option Option Debit Value Status
BMET 28.52 29.76 JUL-30C APR-30C 0.80 1.20 Open
OTEX 29.29 28.35 MAY-25C APR-30C 3.60 4.00 Open
ESI 29.11 26.79 OCT-30C APR-30C 2.40 2.60 Open
OCR 27.07 27.41 JUN-27C APR-27C 0.90 0.80 Open
MO 32.13 28.30 JUN-27P APR-27P 1.25 1.60 Open
Altria Group (NYSE:MO) offered an excellent profit opportunity when
the stock plunged early in the week. However, the move made for a
difficult entry trade and the position was not available near the
target price. Omnicare's (NYSE:OCR) upside activity increased the
debit in that position as well, thus the target entry price was not
attainable. Shares of ITT Educational Services (NASDAQ:ESI) were
hammered this week after a J.P. Morgan analyst told clients to take
profits on the stock ahead of the firm's earnings release on 4/17.
Credit Suisse First Boston also downgraded ESI shares to due to its
recent rise, however the analyst told clients he believed the firm's
near-term fundamentals remained intact. The position had achieved a
small profit prior to Thursday's slump. Integrated Circuit Systems
(NASDAQ:ICST) has been previously closed to limit potential losses.
Credit Strangles
****************
Stock Pick Last Expir. Short Short Initial Gain/ Play
Symbol Price Price Month Call Put Credit Loss Status
REGN 17.31 6.71 APR 25 10 2.60 (0.90) No Play
The speculative position in Regeneron Pharmaceutical (NASDAQ:REGN)
was not initiated as the company's share value gapped lower prior
to the opening bell Monday on news of disappointing trial data for
its obesity drug. The neutral-outlook play offered a much higher
credit ($2.50-$2.70) than originally quoted, however it was not
prudent to open the position in light of the extremely negative
outlook.
Questions & comments on spreads/combos to Contact Support
*************
NEW POSITIONS
*************
This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions. As
with any investment, you must decide if the selections meet your
criteria for potential plays. Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook. In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.
**************
CREDIT SPREADS
**************
These candidates are based on the underlying issue's technical
history or trend. The probability of profit in these positions
may be higher than other plays in the same strategy, due to
small disparities in option pricing. Current news and market
sentiment will have an effect on these issues, so review each
play individually and make your own decision about its outcome.
*****
AZO - Autozone $76.38 *** On The Rebound! ***
AutoZone (NYSE:AZO) is a specialty retailer of automotive parts
and accessories primarily to do-it-yourself customers. During
the fiscal year ended August 31, 2002, the company operated 3,068
auto parts stores in the United States and 39 in Mexico. It also
sells parts and accessories online at autozone.com. Each auto
parts store carries an extensive product line for cars, vans and
light trucks, including new and remanufactured automotive parts,
maintenance items and various accessories. AutoZone also has a
commercial sales program in the United States, AZ Commercial,
which provides commercial credit and prompt delivery of parts and
other products to local, regional and national repair garages,
dealers and service stations. In addition, the company sells
automotive diagnostic and repair software through ALLDATA and
through alldatadiy.com.
AZO - Autozone $76.38
PLAY (less conservative - bullish/credit spread):
BUY PUT MAY-65.00 AZO-QM OI=211 A=$0.60
SELL PUT MAY-70.00 AZO-QN OI=181 B=$1.10
INITIAL NET-CREDIT TARGET=$0.55-$0.70
POTENTIAL PROFIT(max)=12% B/E=$69.45
*****
BSTE - Biosite $42.33 *** New 52-Week High! ***
A leader in the drive to advance diagnosis, Biosite (NASDAQ:BSTE)
is a unique research-based company dedicated to the discovery and
development of novel protein-based diagnostic tests that improve
a doctor's ability to diagnose debilitating and life-threatening
diseases. The firm combines integrated discovery and diagnostics
businesses to access proteomics research, identify proteins with
high diagnostic utility, develop and commercialize products and
educate the medical community on new diagnostic approaches that
improve health care outcomes. Biosite's "Triage" rapid diagnostic
tests are used in approximately 50% of U.S. hospitals and in over
40 international markets.
BSTE - Biosite $42.33
PLAY (conservative - bullish/credit spread):
BUY PUT MAY-30.00 BQS-QF OI=6 A=$0.45
SELL PUT MAY-35.00 BQS-QG OI=62 B=$0.85
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$34.50
*****
GILD - Gilead Sciences $44.15 *** All-Time High! ***
Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical
company that discovers, develops and commercializes therapeutics
to advance the care of patients suffering from life-threatening
diseases. The company has five products that are marketed in the
United States and in other countries worldwide. These are Viread,
a drug for treating HIV infection; AmBisome, a drug for treating
and preventing life-threatening fungal infections; Tamiflu, a drug
for treating and preventing influenza; Vistide, a drug for treating
cytomegalovirus (or CMV) retinitis in AIDS patients, and DaunoXome,
a drug for treating AIDS-related Kaposi's sarcoma.
GILD - Gilead Sciences $44.15
PLAY (conservative - bullish/credit spread):
BUY PUT MAY-35.00 GDQ-QG OI=6638 A=$0.65
SELL PUT MAY-37.50 GDQ-QU OI=2174 B=$0.90
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$37.25
*****
CAM - Cooper Cameron $49.39 *** Trading Range? ***
Cooper Cameron (NYSE:CAM) is an international manufacturer of oil
and gas pressure control equipment, including valves, wellheads,
controls, chokes, blowout preventers and assembled systems for
oil and gas drilling, production and transmission used in onshore,
offshore and subsea applications. Cooper is also a manufacturer
of centrifugal air compressors, integral as well as separable gas
compressors and turbochargers. The company's many operations are
organized into four separate business segments, Cameron, Cooper
Cameron Valves, Cooper Energy Services and Cooper Turbocompressor,
each of which conducts business as a division of the company. The
company's quarterly earnings are due 4/29/03.
CAM - Cooper Cameron $49.39
PLAY (conservative - bearish/credit spread):
BUY CALL MAY-60.00 CAM-EL OI=108 A=$0.20
SELL CALL MAY-55.00 CAM-EK OI=2733 B=$0.70
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$55.50
*****
DRYR - Dreyer's $67.40 *** A Problem With The Nestle Deal? ***
Dreyer's Grand Ice Cream (NASDAQ:DRYR) makes and distributes
premium and super-premium ice cream and other frozen dessert
products. The company also manufactures and distributes branded
ice cream and frozen dessert products of other companies. The
company's product lines include approximately 139 flavors. Some
flavors are seasonal and are produced only as a featured flavor
during particular months. The company's premium product line
includes Dreyer's and Edy's Grand Ice Cream, its flagship product.
This ice cream utilizes traditional formulations with all natural
flavorings and is characterized by premium quality, taste and
texture, and diverse flavor selection. The flagship product is
complemented by Dreyer's and Edy's Homemade Ice Cream, a heavier
and sweeter line of ice creams, and the company's Frozen Yogurt;
Grand Light; No Sugar Added and Fat Free ice creams. The firm's
premium product line also includes M&M/Mars ice cream products.
DRYR - Dreyer's Grand $67.40
PLAY (aggressive - bearish/credit spread):
BUY CALL APR-75.00 QDF-DO OI=26804 A=$0.40
SELL CALL APR-70.00 QDF-DN OI=29095 B=$1.50
INITIAL NET-CREDIT TARGET=$1.10-$1.20
POTENTIAL PROFIT(max)=28% B/E=$71.10
*************
HCA - HCA Inc. $37.70 *** Mediocre Profit Outlook ***
HCA Incorporated (NYSE:HCA) is a healthcare services company that
operates over 180 hospitals, comprised of general, acute care,
psychiatric and joint-venture hospitals. In addition, the firm
operates a large number of freestanding surgery centers. The
company's facilities are located in the United States, England
and Switzerland. HCA's general, acute care hospitals provide a
full range of services to accommodate such medical specialties as
internal medicine, general and neurosurgery, cardiology, oncology,
orthopedics and obstetrics, as well as diagnostic and emergency
services. Outpatient and other healthcare services are provided
by HCA's general, acute care hospitals and through the company's
freestanding outpatient surgery and diagnostic centers, and its
rehabilitation facilities. HCA's psychiatric hospitals provide
a full range of mental healthcare services through inpatient,
partial hospitalization and outpatient settings.
HCA - HCA Inc. $37.70
PLAY (conservative - bearish/credit spread):
BUY CALL MAY-45.00 HCA-EI OI=4271 A=$0.15
SELL CALL MAY-42.50 HCA-EV OI=2765 B=$0.40
INITIAL NET-CREDIT TARGET=$0.25-$0.30
POTENTIAL PROFIT(max)=11% B/E=$42.75
*****
VAR - Varian Medical $49.04 *** A Surprise Sell-Off! ***
Varian Medical (NYSE:VAR) designs and produces integrated systems
of equipment and software for treating cancer with radiation, as
well as cost-effective x-ray tubes for radiation equipment makers
and replacement x-ray tubes and imaging subsystems. The company's
operations are grouped into two segments: Oncology Systems and
X-Ray Products. Oncology Systems designs, manufactures, sells and
services hardware and software products for radiation treatment of
cancer, while X-Ray Products is involved in the design and building
of subsystems for diagnostic radiology. GTC, which is Varian's
research facility, also manufactures and sells its brachytherapy
products and services. The company's quarterly earnings are due
on 4/23/03.
VAR - Varian Medical $49.04
PLAY (less conservative - bearish/credit spread):
BUY CALL MAY-60.00 VAR-EL OI=11 A=$0.25
SELL CALL MAY-55.00 VAR-EK OI=80 B=$0.80
INITIAL NET-CREDIT TARGET=$0.55-$0.75
POTENTIAL PROFIT(max)=12% B/E=$55.55
*************
DEBIT SPREADS
*************
These candidates offer a risk-reward outlook similar to credit
spreads, however there is no margin requirement as the initial
debit for the position is also the maximum loss. Since these
positions are based primarily on technical indications, traders
should review the current news and market sentiment surrounding
each issue and make their own decision about the outcome of the
position.
*****
BGEN - Biogen $35.67 *** Recovery In Progress! ***
Biogen (NASDAQ:BGEN) is a biopharmaceutical company principally
engaged in the business of developing, manufacturing and marketing
drugs for human healthcare. The firm derives revenues from sales
of its AVONEX (Interferon beta-1a) product for the treatment of
relapsing forms of multiple sclerosis (MS) and from royalties on
worldwide sales by its licensees of a number of products covered
under patents it controls. In addition, Biogen has a significant
number of ongoing research programs and a pipeline of development
stage products, including AMEVIVE (alefacept), which is being
considered for approval by the United States FDA and regulatory
authorities in the European Union and Canada for the treatment of
moderate to severe psoriasis.
BGEN - Biogen $35.67
PLAY (less conservative - bullish/debit spread):
BUY CALL MAY-30.00 BGQ-EF OI=1691 A=$6.20
SELL CALL MAY-32.50 BGQ-EZ OI=900 B=$4.00
INITIAL NET-DEBIT TARGET=$2.15-$2.20
POTENTIAL PROFIT(max)=14% B/E=$32.15
*******************
SYNTHETIC POSITIONS
*******************
These stocks have momentum-based trends and favorable option
premiums. Traders with a directional outlook on the underlying
issues may find the risk-reward outlook in these plays attractive.
*****
OVRL - Overland Storage $15.99 *** Earnings Speculation! ***
Overland Storage (NASDAQ:OVRL) designs, develops, manufactures,
markets and supports magnetic tape data automation solutions.
Businesses use these solutions for backup, archival and data
interchange functions in high-availability network computing
environments. The firm's primary products are automated tape
libraries, mini-libraries and magnetic tape loaders that combine
electro-mechanical robotics, electronic hardware and firmware.
Overland also distributes products manufactured by other original
equipment manufacturers (OEMs) and markets various other products,
including spare parts and tape media. The firm licenses a unique
proprietary tape encoding technology that it has developed and
patented under the name Variable Rate Randomizer. The company's
products also incorporate tape technologies based on tape drives
supplied by other manufacturers.
OVRL - Overland Storage $15.99
PLAY (very speculative - bullish/synthetic position):
BUY CALL MAY-17.50 QOJ-EW OI=220 A=$0.70
SELL PUT MAY-15.00 QOJ-QC OI=16 B=$0.75
INITIAL NET CREDIT TARGET=$0.10-$0.20
INITIAL TARGET PROFIT=$0.45-$0.75
Note: Using options, the position is similar to being long the
stock. The minimum initial margin/collateral requirement for the
sold option is approximately $615 per contract. However, do not
open this position if you can not afford to purchase the stock
at the sold put strike price ($15).
*********************
STRADDLES & STRANGLES
*********************
Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.
*****
OIH - Oil Service Holders Trust $54.58 *** Trading Range? ***
The Oil Service Holders Trust (AMEX:OIH) is a unique instrument
that represents an investor’s ownership in the stock of specified
companies in the oil service sector. HOLDRS allow investors to
own a diversified group of stocks in a single investment that is
highly transparent, liquid and efficient. Each HOLDR is a fixed
basket of 20 stocks (except the Telebras HOLDR, which holds 12
companies). They work operate much like ADRs; American Depositary
Receipts, which allow U.S. investors to purchase foreign-owned
companies on the U.S. exchanges in dollar denominated amounts. In
just the same way, the investor actually owns the shares of each
underlying company, receives dividends, proxies, and annual reports
from each. The HOLDRs are not managed, and once the companies and
amounts have been determined they are fixed, no companies will be
substituted. In this way, the HOLDRs differ somewhat from Spiders
(SPDRs), or Standard & Poor Depositary Receipts and other exchange
traded funds, which will add and delete stocks on a regular basis,
usually in conjunction with an index that they are tracking.
A complete explanation of this issue, including the companies that
make up each HOLDRS' particular industry, sector or group can be
found here:
http://www.holdrs.com/holdrs/main/index.asp?Action=Definition
A Neutral-Outlook Strategy:
Traders who participate in OTM credit-spreads often utilize index
and other broad-based options because they provide an underlying
instrument less prone to huge, gapping moves. By combining two
credit-spread positions, you can participate in a popular neutral
strategy known as the "Long Iron Condor." It is often used with
range-bound issues and it is a limited risk, limited profit play
that gives you a wide range for success. Another benefit to this
technique is that some brokers require less collateral for the
combined position, as only one spread can lose money at expiration.
You should consult your brokerage firm to determine the maximum
margin requirements before initiating the position.
From a technical viewpoint, the oil service segment seems likely
to move in constrained price pattern as the long-term outlook is
somewhat uncertain. Review the OIN's Market Sentiment section for
specific technical information on the current trends in equities.
OIH - Oil Service Holders Trust $54.58
PLAY (conservative - bearish/credit spread):
BUY CALL MAY-65 OIH-EM OI=21 A=$0.35
SELL CALL MAY-60 OIH-EL OI=464 B=$0.80
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$60.50
- and -
PLAY (conservative - bullish/credit spread):
BUY PUT MAY-45 OIH-QI OI=5 A=$0.40
SELL PUT MAY-50 OIH-QJ OI=584 B=$0.95
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$49.40
*****
MYG - Maytag $20.28 *** Earnings Speculation! ***
Maytag Corporation (NYSE:MYG) is a global producer of home and
commercial appliances sold to customers throughout North America
and in international markets. The company offers consumers a
full line of washers, dryers, dishwashers, refrigerators and
ranges distributed through large and small retailers across the
United States and Canada. Maytag is also involved in the North
American commercial laundry market with a wide range of floor
care products, particularly the Hoover brand. The firm operates
in two major business segments: home appliances and commercial
appliances. Sales to Sears, Roebuck and Co. (NYSE:S) represent
approximately 10% of the firm's consolidated net sales. The
company's quarterly earnings are due 4/16/03.
MYG - Maytag $20.28
PLAY (very speculative - neutral/debit straddle):
BUY CALL APR-20.00 MYG-DD OI=491 A=$0.90
BUY PUT APR-20.00 MYG-PD OI=390 A=$0.60
INITIAL NET-DEBIT TARGET=$1.40-$1.50
INITIAL PROFIT TARGET=$0.45-$0.75
*****
LNC - Lincoln National $29.88 *** Reader's Request! ***
Lincoln National Corporation (NYSE:LNC) is a holding company
engaged in insurance and investment management businesses through
its many subsidiaries. The primary operating subsidiaries that
comprise LNC are Lincoln National Life, First Penn-Pacific Life,
Lincoln Life & Annuity Company of New York, Delaware Management
Holdings, Lincoln National (UK) plc, Lincoln Financial Advisors,
and Lincoln Financial Distributors. Operations are divided into
four primary segments: The Lincoln Retirement segment provides
tax-deferred investment growth and lifetime income opportunities
for its clients; the Life Insurance segment creates and protects
wealth for its clients; the Investment Management segment offers
various asset management services to retail and institutional
clients, and the Lincoln UK conducts its business throughout the
United Kingdom and offers unit-linked life and pension products.
The company's quarterly earnings are due 4/30/03.
LNC - Lincoln National $29.88
PLAY (speculative - neutral/debit straddle):
BUY CALL MAY-30.00 LNC-EF OI=542 A=$1.35
BUY PUT MAY-30.00 LNC-QF OI=8 A=$1.80
INITIAL NET-DEBIT TARGET=$2.95-$3.00
INITIAL PROFIT TARGET=$0.70-$1.10
*****
------------------------------------------------------------
Quit paying fees for limit orders or minimum equity
No hidden fees for limit orders or balances
$1.50 /contract (10+ contracts) or $14.95 minimum.
Zero minimum deposit required to open an account
Free streaming quotes
Go to http://www.optionsxpress.com/marketing.asp?source=oetics24
Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------
************
MARKET WATCH
************
Market Churns - So Do We
To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/wl_040603.asp
**************
MARKET POSTURE
**************
Tightening Positions
To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/MP_040603.asp
**********
DISCLAIMER
**********
Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
**************************************************************
ADVERTISING INFORMATION
For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:
Contact Support

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a
Broker/Dealer. Readers are advised that all information is issued
solely for informational purposes and is not to be construed as an
offer to sell or the solicitation of an offer to buy, nor is it to be
construed as a recommendation to buy, hold or sell (short or
otherwise) any security. All opinions, analyses and information
included herein are based on sources believed to be reliable and
written in good faith, but no representation or warranty of any kind,
expressed or implied, is made including but not limited to any
representation or warranty concerning accuracy, completeness,
correctness, timeliness or appropriateness. In addition, we do not
necessarily update such opinions, analysis or information. Owners,
employees and writers may have long or short positions in the
securities that are discussed.

Readers are urged to consult with their own independent financial
advisors with respect to any investment. All information contained in
this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please
add "support@optioninvestor.com"